When Do Arms Make Sense?     Top

An ARM may make sense if you are confident that your income will increase steadily over the years, or if you anticipate a move in the near future and aren't concerned about potential increases in interest rates.

What Are The Advantages Of 15- And 30-Year Loan Terms?      Top

1. 30-Year: In the first 23 years of the loan, more interest is paid off than principal, meaning larger tax deductions. As inflation and costs of living increase, mortgage payments become a smaller part of overall expenses.
2. 15-year: Loan is usually made at a lower interest rate. Equity is built faster because early payments pay more principal.

Can I Pay Off My Loan Ahead Of Schedule?     Top

Yes. By sending in extra money each month, or making an extra payment at the end of the year, you can accelerate the process of paying off the loan. When you send extra money, be sure to indicate that the excess payment is to be applied to the principal.

Most lenders allow loan prepayment, though you may have to pay a prepayment penalty to do so. Ask your lender for details.

Are There Special Mortgages For First-Time Homebuyers?     Top

Yes. Lenders now offer several affordable mortgage options which can help first-time homebuyers overcome obstacles that made purchasing a home difficult in the past.

Lenders may now be able to help borrowers who don't have a lot of money saved for the down payment and closing costs, have no or a poor credit history, have quite a bit of long-term debt, or have experienced income irregularities.

How Large Of A Down Payment Do I Need?     Top

There are mortgage options now available that only require a down payment of 5% or less of the purchase price. But the larger the down payment, the less you have to borrow, and the more equity you'll have.

Mortgages with less than a 20% down payment generally require a mortgage insurance policy to secure the loan. When considering the size of your down payment, consider that you'll also need money for closing costs, moving expenses, and --possibly-- repairs and decorating.

What Is Included In A Monthly Mortgage Payment?     Top

The monthly mortgage payment mainly pays off principal and interest. But most lenders also include local real estate taxes, homeowner's insurance, and mortgage insurance (if applicable).

What Factors Affect Mortgage Payments?     Top

The amount of the down payment, the size of the mortgage loan, the interest rate, the length of the repayment term and payment schedule will all affect the size of your mortgage payment.

How Does The Interest Rate Factor In Securing A Mortgage Loan?     Top

A lower interest rate allows you to borrow more money than a high rate with the some 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 shows the cost of a mortgage loan by expressing it in terms of a yearly interest rate. It is generally higher than the interest rate because it also includes the cost of points, mortgage insurance, and other fees included in the loan.

What Happens If Interest Rates Decrease And I Have A Fixed Rate Loan?     Top

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?     Top

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 a loan,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?     Top

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 tax or homeowner's insurance, make sure you are not penalized for late payments since it is the lender's responsibility to make those payments.