Get a fixed rate or ARM?
Mortgages have fixed interest rates or adjustable rates. Fixed-rate mortgages lock you into a consistent interest rate that you’ll pay over the life of the loan. The part of your mortgage payment that goes toward principal plus interest remains constant throughout the loan term, though insurance, property taxes and other costs may fluctuate.
Interest rate on an adjustable-rate mortgage can change over time. An ARM usually begins with an introductory period of 10, seven, five or three years, during which your interest rate holds steady. After that, the rate may change periodically.
Should I pay points?
Discount points are fees borrowers pay to reduce the interest rate on their mortgages.
And if you pay discount points, you typically shell out thousands of dollars up front to save a few dollars every month. It takes several years for the monthly savings to add up to where they exceed the initial amount paid. This break-even period varies depending on loan amount, the cost of the points and the interest rate. It’s often seven to nine years. If you don’t plan to have the loan for that long, it’s a good idea to skip the discount points.
What are the closing costs?
Closing costs are fees charged by the lender and third parties. Closing costs don’t affect the mortgage rate but they do have an impact on your pocketbook. Closing costs usually amount to about 3% of the purchase price of your home and are paid at the time you close, or finalize, the purchase. Closing costs comprise various fees, including the lender’s underwriting and processing charges, and title insurance and appraisal fees, among others.
Any first-time home buyer programs?
Before you settle on a mortgage, find out if you’re eligible for any special programs that make homebuying less costly. Many states offer help to first-time home buyers as well as repeat buyers.
Comparing loan offers
- Apply for a mortgage with multiple lenders. The more you shop, the more you save.
- Shop for loans within a set window of time. The three big credit bureaus encourage you to shop around.
- Compare closing costs using the Loan Estimates. Each lender is required to provide a Loan Estimate form with details of each loan’s terms and fees. The Loan Estimate is designed to simplify the task of comparing mortgage offers.