Are you thinking of buying a home but can’t decide which type of mortgage is best for you? Before you decide on a loan, it’s important that you compare mortgage payments and other monthly costs to determine how each type of loan will affect you financially.
Tips: How to compare mortgage loans
You need to know four important features to shop for a mortgage:
- The term. Some mortgages have fixed rates for the entire term, some have variable rates that can change monthly or yearly, and others have a fixed rate for a certain number of years followed by a variable rate.
- The rate. You’ll want to know the interest rate and the annual percentage rate (APR). The APR adds in points, fees and certain other charges, all expressed as a yearly rate to help you compare loans. If the rate is variable, ask how often it can change and how high your payments could go.
- The points. A “point” is 1% of a mortgage. Typically, the more points the borrower pays, the lower the interest rate. But if you plan to sell in just a few years, you won’t recoup the upfront cost.
- The fees. These may include origination or underwriting fees, broker fees, transaction costs and closing costs. Many reputable lenders will give you the estimate in advance. In any case, many of the fees are negotiable. Interest rates for a “no cost” or “no fee” mortgage will be higher. Fees are not always the same as closing costs.