Mortgage Basics - What You Need To Know

Mortgage Basics : What You Need To Know About Today’s Mortgage Market

Looking to buy a new home…or refinancing the one you own? You may not have all the facts you need to know to make informed decisions about how to get the best mortgage value, and you may not be prepared to help to insure that you’re protecting yourself from hidden mortgage costs.

Before you commit to a long-term mortgage there are many things to consider. It is important to understand the basic fixed vs .adjustable rates, mortgage lender fees, the difference between pre-qualified vs. pre-approved, discount ‘points’, & the different mortgage options if your credit score is an issue.

Similar to with stocks, mortgage rates are dynamic & therefore continually change and will usually vary in the course of a day. In order to ‘lock in’ the lowest mortgage rate, you should familiarize yourself with what current mortgage rate increases & decreases are in the mortgage market, and compare the choices offered by the various mortgage lenders.

Mortgage Lending Fees

When it comes to mortgage lending fees, many borrowers do not realize that they have the ability to negotiate the price of the mortgage, & that the various mortgage lenders offer different fees, which can vary significantly. Every new mortgage or mortgage refinance has lending fees, and it is up to the borrower to research the facts regarding each particular state’s mortgage laws, in order to learn about the many factors that could affect a mortgage. For example: adjustable or fixed-rates, mortgage ‘points’, or whether there are maximum fees that mortgage lenders can charge…to name a few. Doing some basic research could save a consumer a significant amount of money; both initially & in the long-term; when you consider that most mortgages mean a commitment of at least 20 years; and even if you don’t utilize the services of the lowest-priced lender, the information you obtain could be useful in negotiating the terms of your mortgage. One example is that you can discuss competitor pricing when negotiating with any other potential mortgage lenders.

Adjustable Rate Mortgage (ARM) vs. Fixed-Rate Mortgage

Making the decision to refinance your home using a fixed-rate mortgage or an adjustable-rate mortgage (ARM) can be a daunting prospect. Choosing to go with a fixed-rate mortgage is most-likely the better choice depending on whether your plan is to stay in your home for an extending period of time (30 years or more). It can be a big comfort for most people, to know that their monthly mortgage payment will not change. However, one factor that is commonly misunderstood with Adjustable Rate Mortgages, is that they are always ‘reset’ to a higher price; which frequently is not the case. The way in which it is calculated is, that an ARM is adjusted to the sum of the margin plus the index. This can mean when it ‘resets’ that it may be at a lower rate. If you are only staying in your home for a short period of time…a few years or less; there would be an advantage to choosing an ARM.

Pre-Qualified Mortgage vs. Pre-Approved Mortgage

Another consideration when ‘purchasing’ a mortgage, is that often times a borrower does not understand the differences between being ‘pre-qualified’ or being ‘pre-approved’. The difference is that with mortgage pre-qualification, the lender approximates your financial situation & has determined the amount that you are able to borrow. With mortgage pre-approval a lender has completely checked out your finances, reviewed your credit report, and has approved a specific loan amount for your mortgage.

Discount Mortgage ‘Points’

If you are familiar with how the mortgage ‘points’ system works, you may think that buying discount mortgage points is a valid idea, but are you considering the long-term effects? This has advantages inn the case of if you are planning to keep your home for a long period of time, however; since the costs are you are not likely to recover the amount you paid for the mortgage points if you are planning to move in a few years or less.

FHA Mortgage Loans

If low credit scores and a down payment are major issues or barriers in whether you will qualify for a mortgage loan, you may want to research & consider applying for an FHA loan for your mortgage. FHA mortgages are designed for people who have current or prior credit issues and they can be obtained for less than a 20% down payment.

Being informed about the mortgage basics, means being better prepared to purchase a mortgage for a new home or to refinance your existing home’s mortgage.

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