If you are getting ready to buy a new home or to refinance your present home, you can benefit considerably by educating yourself on the basic costs and terms connected with mortgage loans and payments. Knowing in advance about current interest rates, discount points, loan fees, principal, interest, taxes and PMI (private mortgage insurance) will increase your ability to deal effectively with your prospective lenders. Interest rates Interest rates differ extensively depending on the lender, your past credit history, the interest rates set by banks, your income, and other factors. Finding a low rate is of the utmost importance, because your interest is the single fee that will add thousands of dollars to your loan. Be sure to look at all aspects of your loan and how they fit together for the overall picture. In some cases, you may want to take a slightly higher rate in order to secure more flexible payment terms or better protection on your loan. Discount points Discount points, which are also called prepaid interest or loan origination fees, are prepaid finance charges imposed by the lender at closing, to increase the lender's yield beyond the stated interest rate on the mortgage note. One point equals one percent of the loan amount. For example, one point on a $35,000 loan would be $3,500. The total number of points a lender charges will depend on current market conditions and the interest rate being charged. The IRS considers points to be a form of prepaid interest which means they can be deducted from taxable income. There are also many loan fees that will apply. Here are the most essential ones to ask about: Application Fees are the initial costs of processing you loan and checking your credit report. Title searches and title insurance cover the cost of examining the public record to confirm ownership of the real estate and the cost of the policy. Lenders attorneys review fees are fees paid to the lawyer or company that conducts the closing for the lender. The loan origination fee is charged for the lender's work in evaluating and preparing your mortgage loan. The origination fee is normally between 1-2% of the loan amount. |
