If you’re in the market for a new house, learn all you can about home loans before going too far into the process.
Here are some things you may not know about home loans:
If you’re looking for a new home, you may be checking mortgage rates as often as some people check their Twitter feeds, but rates fluctuate. Know that the rate you see today may be different than the one you actually get when you get approved for your loan.
The cheapest interest rate does not guarantee the cheapest loan
There are more factors to consider, including closing costs and the lender’s policy on releasing equity. Also, in adjustable-rate mortgages (ARM), the loan boasting the lowest interest rate may not have the lowest rate a few years down the line after it adjusts.
A fixed-interest rate mortgage can ultimately cost you more
A fixed-rate mortgage often has higher exit fees, or fees paid to the lender, when the loan is repaid. Also, if rates drop further throughout your loan’s term, you won’t be able to take advantage of the new rates unless you refinance. Finally, interest rates on fixed-term mortgages are generally higher than the initial rate on ARMs.
A lower credit score will cost the borrower
A high credit score can translate into tens of thousands of dollars in interest payments over the life of a home loan. A credit score difference of 100 points can increase a monthly mortgage payment by $150 or more.
The housing market impacts rates
Lenders need to turn a profit from their loans, which means the higher the volume of loans they process, the less they need to earn from each one to remain profitable. When the housing market is booming, and lenders are granting loans on a frequent basis, they will be more inclined to offer lower interest rates to borrowers.
You can have your mortgage payments automated
Missing a mortgage payment or paying it late can have serious consequences. Avoid that by signing up to have your monthly mortgage payments automatically deducted from your checking account. Most lenders provide this service, so check with yours to see if this is an option they offer.