Pay your mortgage comfortably
Taking out a mortgage can be a stressful process because it is probably the largest amount of money you will ever borrow and the terms are often confusing.
Regardless of the terms and rates, you have one goal; determine what you want to spend upfront and monthly.
There are a lot of factors that will come in play that can help you meet your financial goal comfortably.
Move.com’s article, “Play the Numbers,” offers advice on how you can determine what you will have to pay depending on certain situations.
The first thing to understand is the importance of interest rates. Basically, the higher the interest rate, the higher the monthly payment; the lower the interest rate, the lower your monthly payment.
Next, you should have an understanding of points and how you can use them to have lower monthly payments.
One point is equal to one percent of the total amount of the loan. So, if you have a $100,000 loan, one point is equal to $1,000, two pints is equal to $2,000.
Points are paid directly to the lender as part of closing costs. “ With many loans, you can lower the rate by paying more points. If you have the cash, it's a good way to save money on interest over the life of your loan. If you're low on upfront cash, then go for fewer points.”
You should also use the APR to compare loans. The APR is the annual cost of a loan as a percentage, factoring in not only its rate, but also the points and other charges over the life of the loan.
“The Truth-in-Lending law requires all advertisements for home loan credit terms include the APR. The APR is intended to enable you to compare terms of loan products from different lenders. To make an accurate comparison, compare loans with the same terms, interest rates and points. Then look at the APR. The loan with the lower APR is the less expensive loan.”
You can save money with a “no origination fee” loan. Some lenders charge an origination fee to cover the costs of processing the loan. This is not required. Request that the origination fee be waived. But make sure that, if the fee is waived, there are no other points or hidden charges added on to the loan.
If your lender says that he or she has to charge an origination fee, you may want to consider doing business with a different, more honest lender.
Now, you’re ready to sign the contract, you have comfortable rates but are worried about them changing before the mortgage loan is finalized. Lock in the rate.
“What should you look for in a rate lock? Make sure it allows enough time for your loan to be processed. And get it in writing. This is important because some lenders offer rate protection for just a week or 10 days--not long enough for many loans or home sales to be completed. If you exceed the lock-in period and your rate expires, you may see your loan rate go up.”
Conversely, if you think rates will drop during the time the mortgage is completed, let your rates “float.”
“ You can watch rates and lock in at any time until the day before your loan closes. The moment you tell your lender to lock the rate, that's the rate you'll get. But be careful. Rates are as difficult to predict as the stock market. And if rates suddenly shoot up, you could find yourself with a higher monthly payment than you planned or, even worse, unable to afford the home of your dreams.”
You have options to adjust your monthly payments. But every action you take can affect something else. Be very deliberate in your mortgage application. Do not be pushed, by your lender, into doing something you are not comfortable with.