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What to Ask When Comparing Mortgage Loans

Most homebuyers realize the importance of interest rate when choosing a mortgage loan.  However, there is much more to a mortgage than just interest rate.  The various aspects can make a major impact on how much you pay in the long run and how long you will be in debt.

When comparing mortgage loans, you should ask the loan officer these questions.

 

-Will I get points on my mortgage loan?

-What costs are associated with closing?

-What other costs will I have to pay?

-What is the interest rate for these other costs?

-Will I be penalized for paying early?

-What is the amortization process?

 

It helps to make a spreadsheet to compare mortgage loans. In the top row, put the names of the mortgage loans.  In the first column, put each of the questions.  Then fill in the rids accordingly.  You will be left with visual comparison chart which allows you to easily compare all mortgage loan features.

 

For mortgages with adjustable interest rates, you will also want to ask:

-When will the interest rate change?

-How frequently will the interest rate change?

-What is the maximum amount that the rate can change?

-How much will I need to pay monthly if the interest reaches its maximum?

-How are adjustments to the interest rate determined (what index/margin)? 

-How has this index/margin affected mortgage rates up until now?

 

Adjustable rate mortgages will almost always have a lower introductory rate than a fixed rate mortgage.  However, the adjustable rate mortgages are much riskier because you can never predict for certain how the rates will change over time.  That is why it is important to look at adjustable rate mortgages with the worst possible scenario in mind.   If the difference between the adjustable and fixed rates are not that much, then it is usually best to go with the fixed rate mortgage.  While you won’t be saving on the short-run, you could save a lot of money in the long run.

 

You can now easily find a mortgage calculator which will easily and accurately calculate the amount of money you will be paying.  However, not even the best mortgage calculator can compute all the factors.  When comparing mortgage loans, you will also need to consider the reality of your situation.  Ask yourself these questions:

-Do I really plan on living in this house for the full duration of the loan?

-How is my job security?

-Will I be able to make larger mortgage payments later on?

-Will I have more financial obligations in the future (such as a new baby, etc)?

-What level of risk is in my comfort zone?

 

Remember that mortgage loans aren’t just about saving money.  You also need to factor in your personal needs.  It takes more than just a mortgage calculator to get an adequate picture of how  your mortgage options compare.