Mortgage loan is a loan that is granted to either secure or purchase a property. Mortgage loans are generally long-term loans and the periodic payments is calculated annually according to the value of money figured by the interest amount that is earned over a period.
In a haste to acquire a mortgage loan, a person is always carried away with the approach of the first lender. It is always good to shop around and find the best lender that suits your situations. Sometimes a lender may be kind enough to offer his expertise and offer better rates than any local banks. You should always do your homework well and compare various lenders before finalizing your deal. There are also good financial portals online, such as Finanza, where you can compare different lenders and choose the one that fits you the most.
Tips to compare the lenders – and understanding mortgage loans
1. Rate of Interest: – Primarily compare the interest rates as this determines your payments and the amount you would be paying for maybe next 15 to 30 years, therefore its vital to keep a watch on the quoted rate. Never go by the advertised rates, as they are reserved for clients who have a perfect credit score. Either rate of interest is fixed for the life or sometimes it is variable.
2. Processing fees and costs: – Processing fees is the amount charged for processing your mortgage loan, costs is also known as closing costs and it accompanies with the processing fees. Processing charges includes the origination fees, credit report fees, application fees, appraisal fees and so on. Lenders by law are supposed to provide you with a clear estimate within three working days of your application. The estimate should cover all the charges that would later be incurred to you.
3. Restrictions and Penalties: – Different loans offer different rules of penalties; some loans for example include the prepayment penalty that prohibits you from making larger amount of payments than your scheduled amount. Some banks also restrict on what you are allowed to do in your home. Be very careful while agreeing the terms and clarify all your doubts before signing the red line.
4. Lender’s Past History: – It is always not possible to check the lenders past history but it is important to ensure that they are honest and trustworthy. The best way to stay safe is to approach a lender through a referral.
5. Down Payment: – lenders usually require the borrower to pay a down payment that contributes to some portion of the cost of the property. The down payment is calculated as per the loan to value ratio like for example if you pay a down payment of 20% then the loan to value ratio is 80% , higher the loan to value ratio, higher the risk that the property value will be insufficient to cover the balance principal of the loan.
6. No, Interest No Capital: – Some lenders offer no capital no interest to older borrowers where neither the capital nor the interest is repaid and then later the interest is rolled up with the capital to increase the balance due each year. This process is called as lifetime mortgage or equity release mortgages.
It is very important to compare the mortgage lenders as it saves thousands of dollars over the long run.