Home Loan Mortgage

Decide between a fixed rate and a variable rate: the first thing that you are required to do is decide whether you want a fixed rate of interest or a variable interest for your mortgage. With a variable rate of interest you would initially have to pay a lower amount, which is fixed for some duration of time, but as time passes the interest rate starts fluctuating. When a lender specifies a time for an adjustable rate mortgage (ARM) then that time is for the fixed interest period and the latter is for when the rates change supposing he specifies 4/2 then it means that the interest will be fixed for a period of four years and the rates will be variable every two years after these four years. On the other hand if you choose a fixed rate of interest then the interest will remain the same every year and so will be your monthly payment.

If you dont plan to stay in the same house for a long time then the variable interest rate is a good option for you. But if the interest rates are low and you have long-term plans to stay in the house then you should opt for a fixed rate of interest.

Decide the amount of down payment: the more amount of money that you give in as down payment the lower is the monthly payment. Most of the lenders require a minimum of three percent as a down payment, but besides this there are many plans under which you would have to a lower down payment. If you can afford to pay 20% as the down payment then you can escape paying the private mortgage insurance. With this amount of down payment you can also get a low rate of interest. You can negotiate with your lender with these terms. Ask him if you pay a larger down payment can your rate of interest and monthly payments be reduced.

Understand the fees: when you take a home mortgage loan then you should ask your lender for a good faith estimate. This document contains details of the all the fees that have to be paid before taking a loan or at the time of closing the loan. When you compare the fess and the interest rates it can be a bit difficult to make your decision but by comparing the annual percentage rates (APR) you can get a clear picture of how much are you supposed to pay. The annual percentage rate includes the fees and the interest that you would have to pay over the time period of the loan. The loan having a lower APR is often recommended, as it would involve lesser costs. However if you were opting for a variable loan interest then the APR would not be able to predict the exact cost that would be incurred over the period of the loan.

Pick your points: there are many lenders who would offer you a lower rate of interest if you would offer to pay in some points. One point is generally equivalent to one percent

of the loan amount. Consider paying points you would have to work out how long you plan to stay in the house. If you consider paying in one point on a $100,000 loan amount which comes up to $1,000 then you would have to stay in the house for almost twenty months to recover the point that you have paid as an up front.

Lock your rate: unless and until you lock your interest rate the interest is not applicable to your loan. The rates are susceptible to variation and fluctuation every day and till you lock your interest rates the rate on your loan also keep changing with the change of the rates in the market. If you are content with the interest rate that you have at present then you can lock it then and there, this can save your interest from rising when there is a rise of rates in the market. In case you are looking for a lower rate of interest then you should wait for sometime till the rates go down. Once the rates re down then you can block it.

When you lock your interest rate make sure that this is written down and is documented. The document should mention the interest rate and the day it was locked. Besides it should also mention the date when the locked interest is likely to expire. This would make sure that there is no confusion while paying the loan and understanding the details of the monthly payments.

If you follow these steps and make sure that you have understood all the terms and conditions of the loan well then you can get a good quote very easily. Dont forget to negotiate with the lender when you are paying a big down payment or you are paying in points. These could reduce your payments markedly and would help you meet up with the costs regularly. So try your best to follow them.

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