| How does the interest rate factor
in securing a mortgage loan? |
| A lower interest rate allows you to
borrow more money than a high rate with the same monthly payment. Interest
rates can fluctuate as you shop for a loan, so ask lenders if they offer a
rate "lock-in" which guarantees a specific interest rate for a
certain period of time. Remember that a lender must disclose the Annual
Percentage Rate (APR) of a loan to you. The APR a mortgage loan by
expressing it in terms of a yearly interest rate. It is higher than the
interest rate because it also includes the cost of points, mortgage and
other fees included in the loan. |
| What happens if interest rates
decrease and I have a fixed rate loan? |
| If interest rates drop significantly,
you may want to investigate refinancing. Most experts agree that if you
plan to be in your house for at least 18 months and you can get a rate 2%
less than your current one, refinancing is smart. Refinancing may,
however, involve paying many of the same fees paid at the original
closing, plus origination and application fees. |
| What are discount points? |
| Discount points allow you to lower your
interest rate. They are essentially prepaid interest, with each point
equaling 1% of the total loan amount. Generally, for each point paid on a
30-year mortgage, the interest rate is reduced by 1/8 (or.125) of a
percentage point. When shopping for loans, ask lenders for an interest
rate with 0 points and then see how much the rate decreases with each
point paid. Discount points are smart if you plan to stay in a home for
some time since they can lower the monthly loan payment. Points are tax
deductible when you purchase a home and you may be able to negotiate for
the seller to pay for some of them. |
| What is an escrow account? Do I
need one? |
| Established by your lender, an escrow
account is a place to set aside a portion of your monthly mortgage payment
to cover annual charges for homeowner's insurance, mortgage insurance (if
applicable), and property taxes. Escrow accounts are a good idea because
they assure money will always be available for these payments. If you use
an escrow account to pay property taxes or homeowner's insurance, make
sure you are not penalized for late payments since it is the lender's
responsibility to make those payments. |
