What are the terms of the loan?
All the terms of a loan matter, not just the interest rate. You'll want to get a complete picture and break down of what a given offer means to you on a monthly basis as well as how much money you'll be spending over the life of the loan.
At a minimum, you should request quotes with a few different scenarios and compare the financial impact of each situation before you determine your best course of action.
Loan Type / Rate Types
Fixed Rate (Traditional) Loan
These loans are usually structured with repayment terms of 15,20,or 30 years. The lender will agree to charge a fixed interest rate over the life of the loan. With this loan type, your monthly mortgage payments will remain the same for the length of the term.
Adjustable-Rate Loans (ARMs)
Also known as variable-rate loans, ARMs often offer a teaser rate for the initial period of the loan. This introductory interest rate is usually lower than rates offered for fixed rate mortgages. The interest rate will fluctuate over the life of the loan based on market conditions. Changes in rate happen at certain time periods, and the lender can set both a maximum and minimum on the rate of fluctuation.
Federal Housing Administration(FHA) Loans
Federal Housing Administration(FHA) insured loans are made by private lending intuitions such such as banks, savings & loans, or mortgage companies to eligible borrowers for the purchase of a home. To secure an FHA loan, a borrower must apply and qualify with a certified FHA Lender. Additionally, eligible borrowers must to be able to pay a minimum or 3.5 of a home's purchase price. If the loan is approved, FHA will insure a portion of the loan's value to the lender.
Veterans Administration (VA) Guaranteed Loans
VA Home loans are available to qualified Veterans and their spouses. Private lending institutions issue the loans which are in turn guaranteed by the Veteran's Administration. The VA does not require any down payment on VA Guaranteed loans and allows the borrower to receive a competitive, fixed interest rate.
Points
The lender or broker can charge you points on your mortgage. One point equals 1 percent of the loan amount. These are simply fees paid to the lender or broker that are often linked to the interest rate, and are usually paid in cash to the lender or broker at closing. A lender may offer you a lower interest rate, but charge more points, so it's important to compare offers.
Thing to keep in mind.
1. You can ask your lending institution for a list of its current mortgage rates. You'll want to ask your lender whether you're being quoted the lowest rate for the day or week.
2. If the rate quoted to you on a loan in an adjustable-rate, ask when and how your loan payment will vary.
3. Ask what the loan's annual Percentage rate (APR) is. The APR will express as a yearly rate all of the fees associated with a loan including the interest rate, points, broker fees and other credit charges you may be required to pay.
4. For better understanding., ask your broker or lender to quote you a dollar amount-rather than just a number- on any points you are being charged on the loan.
5. If you are satisfied with a proposed interest rate, you can ask your lender if he or she can lock-in the quoted rate. There may be a fee associated with locking in a rate and the agreement will generally only last 60 to 90 days.
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