Understanding Points, Rates and Fees
Not
only do you have to understand what type of mortgage you should choose, you
have to understand the costs associated with your mortgage. All of these costs
will be paid upon closing your mortgage.
Purchase Points
Purchase
points, also known as a "buy-down" or "discount points,"
are an up-front fee paid to the lender at closing to buy-down or lower your
interest rate over the life of the loan. Each point is equal to one percent of
your total loan amount. If you have a $100,000 loan, one point would equal
$1,000. The more points you buy, the lower your interest rate, but the more
money you'll need at closing.
How
do you decide whether you should buy points and if so, how many? Well, the
decision should be based on how long you plan on living in your home and what
you can afford to pay each month toward your mortgage. If you plan on living in
your home for more than five years, it's probably a good idea to purchase
points. The longer you live in your home, the more you can save on interest
over the life of the loan.
Interest Rate
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.
Mortgage
interest rates change constantly.daily, even hourly. If you speak to a lender
and are quoted a specific interest rate, that's not to say you'll necessarily
get that rate when you close on your loan. Not unless you formally lock-in that
rate with the lender.locking in an interest rate will guarantee you get your
loan with a particular interest rate. Lenders will allow you to lock in for 15,
45 or 60 days. But the longer you lock in, the more expensive it will be, since
it's more of a risk to lenders.
Fees
There
are always fees associated with getting a mortgage, these fees cover the cost
of processing and underwriting the loan. These fees can include charges for
ensuring the title to the home is free and clear; paying for a land survey; or
paying for a home appraisal which gives you the estimated value of the property
(lenders require an appraisal to close on your mortgage).
Deciding
which mortgage to get may depend on what each lender does because different
lenders may charge different amounts. Some may charge lesser closing fees to
lure you in, but may charge you a higher interest rate, which means you may pay
more in the long run. But everyone has different needs.you may or may not be
able to afford to pay more at closing and are willing to pay more over the long
term.
Before
it comes time to close, do your homework, make sure there are no hidden fees,
and ask your lender lots of questions so that you understand all the costs
involved with your mortgage.
*Please
consult your tax advisor.