Getting a Mortgage

Back to first Five Things

Thing No. 6

APR is not a month.

You always see advertisements for loans, such as mortgages, that include a percentage figure called the APR. This stands for 'Annual Percentage Rate'. This is not an interest rate but a figure, which represents the total charge payable each year for a loan. You don’t need to know how to work out an APR, you just need to use the APR to compare costs when you are shopping around for a loan.

Thing No 7  

Interest Only.

An interest-only mortgage covers only the interest on the loan. It does not pay off any of the capital. You’ve got to have a plan for paying separately into a savings or an investment scheme to build up a lump sum to pay off the mortgage at the end of the term.  It is your responsibility to make sure you have enough money to repay the mortgage at the end of the term, otherwise they’re coming after you and your house.

Thing No 8  

Shop for discounts. 

If you are good at saving money, get the best prepayment and payment frequency options you can keeping in mind that most of us may have the best of intentions regarding extra payments, but then we have a way of flaking. So, you still need to get the best interest rate you can.

Thing No 9  

Points vs. Rate.

When picking a mortgage, you usually have the option of paying additional points -- a portion of the interest that you pay at closing -- in exchange for a lower interest rate. If you stay in the house for a long time -- say five to seven years or more -- it's usually a better deal to take the points. The lower interest rate will save you more over a long run.

Thing No 10  

Know your costs.

To ensure that life becomes as complicated as possible, there are a variety of different costs and fees in your mortgage including related third-party vendor fees such as:  appraisal, credit report, lender's title policy, Pest inspection reports, escrow (where applicable), recording fees, taxes, an estimate of these fees constitutes the Good Faith Estimate or GFE, which the lender is required by federal law to give to you.  Although, the good faith part means it’s not guaranteed.

Thing No 11  

Negotiate.

Generally, the difference between the lowest price for a loan and a higher price is an overage. They can be in the form of points, fees, or the interest rate. Have the lender or broker write down all the costs associated with the loan. Then ask if the lender or broker will waive or reduce one or more of its fees or agree to a lower rate or fewer points. You’ll want to make sure that the lender or broker is not agreeing to lower one fee while raising another or to lower the rate while raising points.

Thing No 12  

Get Pre-approved.

Pre-qualified isn’t the same.  Getting pre-approved means the lender has checked you out thoroughly and is willing to make you a loan.  They’ll lay out all the terms and rates they’re offering so you can choose the best loan for you.  Doing this before you shop will give you the best idea of what you can afford, and once you do start shopping, you won’t lose out on a house you want while waiting for a loan approval.  See buying a home on Five Things for details about credit reports and the cleaning up thereof.