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Points – Rates – Fees. What you NEED to know.

August 4, 2011

There are a number of points, fees and rates associated with getting a mortgage. Some are more well-known than others, and some are known, but don’t make a lot of sense. I am going to explain 3 key elements to the mortgage, Purchase points, interest rates, and fees. All things you can expect to hear about while going through the process. Remember, the most important part of getting a loan is finding an agent you can trust, knows your needs & wants and answers your questions. Also, making sure you can afford it over the life of the loan is smart too!


Purchase Points, Buy-Down Point, Discount Points.

What are they and how do you decide if you want to buy them?

To-may-toe, to-mah-toe. All three are interchangeable terms for an up-front fee paid to a lender at closing to lower your interest rate over the loan life. Points are equal to 1% of the total loan amount so if you buy a $200,000 house, 1 point is $2000. Also, the more you buy, the lower you drop your rate. However, this also means the MORE you bring to closing.

Whats the deciding factor? Typically, you consider how long you want to own the home and what you can afford to pay each month. The longer you live in the home (or even rent the home out), the more you save on interest over the life of the loan. Personally, I would say if you plan on owning the home for over 7 years, purchase points are a great idea! This situation also requires consideration of what you can put down. If you don’t have a large savings, it may not be the best option.


Interest Rate.

This term refers to the rate lenders charge for borrowing their money. These days interest rates are dropping like flies. They are constantly changing and can go UP or DOWN.

When you get a mortgage, you are charged an interest rate.this is the rate which the lender charges you for using their money to buy a home. It determines how much your monthly payments will be. Generally speaking, the higher the interest rate, the higher your monthly payment. There are two types of mortgage people go with, fixed or ARM (Adjustable Rate Mortgage) and this determines whether the interest rate will be locked in or change with the times. When you get a quote from a lender for a specific rate, you are not guaranteed that rate because it may change before the closing, however, you do also have the ability to lock the rate in. Generally, lenders will allow you to “lock in” for 15, 45 or 60 days, and this can be expensive, but it can also save you a lot of money over time.

This may be the most important part of your mortgage, so make sure you do research, ask any and all questions, and know what you are getting yourself into.

 

Fees.

Fees are a part of doing business and they are definitely associated with getting a mortgage. Generally, they cover the cost of processing and underwriting the loan. They can include charges for a number of services requested by the client, such as insuring the title is free and clear, land surveys, or appraisals (required to close by lenders). Lenders have different fees and requirements for getting the loan approved. Choosing a lender wisely is key to being successful in your home purchase.

This is another key area to ask LOTS of questions so that you fully understand exactly what you are doing.

 

All in all, getting a mortgage is a daunting process, so making sure that you ask about anything you don’t understand, finding a lender that makes you comfortable and finding something you can afford, both now and in the long run, even considering a job loss or other unknowns is incredibly important.

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