What You Need to Know About the Rates, Points and Fees on Your Mortgage
When you first apply for a mortgage loan, three of the most of things you want to entertain are the interest rates, points and fees that are associated with each specific mortgage you are considering. These three things can greatly affect the amount of money you have to pay in turn for borrowing the money to purchase your house.
Depending on your credit history, income, expenses and long term debt, you can either qualify for either a prime or sub-prime loan. A prime loan means you have a decent financial situation and can qualify for a large amount of money, at a good interest rate, with the normal points or fees. A sub-prime loan is for those with not such a good financial situation. Often, sub-prime loans come along with higher interest rates and more points and fees that are paid in turn for the lender having to take on a higher risk client.
The interest rate is what is charged in turn for the lender allowing you to borrow the money. It is determined by starting with a base index rate, and on top of this are percentages that represent certain risks, such as default and inflation.
The APR or annual percentage rate is the total amount multiplied by the principal to determine the interest amount paid every month. Obviously, the lower the APR, the less money you have to pay in interest. Every month, you pay some money towards the principal, or the actual amount you borrow, and some towards interest. As the principal decreases, you pay less in interest, because the principal amount is less.
Points are usually one time fees that you pay to the lender or broker for the mortgage. It is usually a percentage of the total principal amount borrowed. The more points you pay upfront, the lower the interest rate usually is. You have to be careful, however, and always do the calculations for each scenario because even though you are paying a lower interest rate, you could pay more money with the points than the interest rate a little higher.
Additional fees may include application fee, loan processing fee, appraisal fee, underwriter fee, lender fee, attorney fees, broker fees, credit report fee, document preparation fee, and all other fees that may have been included with the specific mortgage. Your specific mortgage may not include any of these, but you must ask your broker or lender exactly what fees are included in the mortgage.
Expect to get a detailed itemized report of all the breakdowns of the rates, points and fees. This way you know exactly where your money is going and why. This is the best way to avoid loan fraud. If there is an item you don't understand what the service is, or why it is there, you have a right to ask and get an explanation. Do not agree to anything that you are not clear on.
By understanding all the terms of the mortgage loan, you can see exactly how much the mortgage will cost you. Be careful of being charged too many fees and points that are necessary for your situation, especially if your credit history is average or above. Work with lenders and brokers you have gotten referrals from and believer are working in your best interest. Use these tips to get the best mortgage rate you can!
John R Blakefield is a mortgage and real estate specialist. For more information, articles, news, tools and valuable resources on home mortgages or investment loans, refinancing, debt solutions, visit this site: http://www.scourtheweb.com/mortgage/.
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