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How To Compare Home Loans
By Gary Gresham
When you decide to compare loans, it can often be a confusing process. With numerous places to get a mortgage, how do you even know where to start?
To compare loans, most everyone searches for the best mortgage interest rate. Every day mortgage companies get calls from people asking what the mortgage interest rate is. The problem is, that is not a very good way to compare loans.
Not only do rates change frequently, unless you are locked into an interest rate, it means nothing. Even though your interest rate is important, that is only one part of the package.
Several loan officers will gladly give you quotes over the phone but they really are not doing you any favors if they do. What you really need to know is, are you getting the right kind of mortgage for your particular situation?
Here are a few considerations beyond getting the best mortgage interest rate when you are ready to compare loans.
How long are you going to live in your home? Long term loans, like 30 year fixed loans, have interest rates that won't change for thirty years. A lot can happen in that time so the lender has a high risk and these loans usually have a higher mortgage interest rate because you are buying long term security.
But what if you are the type that moves every five years? Now, the lender only has to guarantee the interest rate for five years so the risk is lower and generally the interest rate is too.
With the average person changing homes every five to seven
years, paying for this long term security may be a waste of money. Generally, if you believe that you will be in the for more than 7 years, then a 30 year loan makes sense. But any less and you should consider a short term fixed loan with lower monthly payments.
If you want to compare loans from different lenders, ask them for a good faith estimate form that lists all mortgage closing costs. Whether you are getting purchase loans or refinancing mortgage loans, a good faith estimate form is produced for both.
The good faith estimate form lists all of the estimated mortgage closing costs and the form shows what the lender fees and escrow fees from each lender are. One lender may be offering you the best mortgage interest rate, but if his lender fees are much higher than the other lender, is it really a better deal for you?
You'll be able to quickly figure out which is a better deal once you look at both good faith estimate forms. If a lender won't give you this form, consider it a red flag because they are obviously trying to hide something.
Also, make sure you understand how your loan works. With the new hybrid ARM's coming out, even loan officers can become confused and offer you the wrong information. There should never be surprises in a mortgage loan because surprises usually cost you a lot more money that you expected.
Ask a lot of questions if you are unsure of anything and get solid answers from your mortgage broker or loan officer before you sign your paperwork. Remember, you are responsible for the loan once you sign the paperwork no matter what you were told.
These are just a couple of more things to consider other than just getting the best mortgage interest rate when you are ready to compare loans. Someone that is offering you the right loan should determine how it fits into your particular situation.
It's always good to know all of your options so you can compare loans the right way and end up with the best possible mortgage loan for you.
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