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Archive for February 8th, 2012

Planning to purchase a home? There is usually more to a mortgage than just its type; you have to realize the added costs it involves. These added costs are the costs that have to be paid when a mortgage is closed.

What are purchase points? Purchase points, which are also sometimes referred to as “buy-down” or “discount points”, are an amount that is paid as a fee to the lender during the closure of the mortgage to bring about a decrease in the interest that needs to be paid during the interest payment period of the mortgage. Each point is usually equivalent to one percentage of the total loan amount. For example, on a loan of $200,000, one point would be equivalent to $2,000. Purchase points help decrease the amount of monthly interest that needs to be paid, but they increase the total amount that needs to be paid during closure of the mortgage.

It is only wise to purchase points if you decide to live in your house for a long time, such as six years. You may also find it necessary to purchase points if you cannot cope up with paying the rate of interest. Purchasing points incase you live in the house for long is particularly effective because then you have a lot of time to save up from the decreased interest of the loan.

What is interest rate? It is a fee that is charged by the lender to the one who is borrowing the money for letting him to use the money to buy a home for himself. Interest rate is paid monthly. The higher the interest rate is, the higher your monthly payment will be.

The interest rate on mortgages change constantly, hence, it is likely that you might have to pay variable amounts each month and you may not get the same rate when you close the loan. However, there is an option to lock the interest rate for fifteen, forty-five or sixty days. But, doing so is usually expensive as interest rates stay fixed and lenders face a loss if the actual interest has risen.

Fees – All mortgages obtained have fees involved. The fees usually are for managing and processing the loan and to make sure that the ownership of the home is clearly titled to the owner. The fees are also for preparing an overview of the land and to evaluate an estimated value of the property.

Different lenders charge different fees. Some charge less closing fee to attract borrowers but charge more monthly interest, as result, you are paying more, over time. Some charge less monthly interest, but charge a higher closing fee, which requires you to pay a greater deal at a time during the payment of the closing fee. Hence, choose a mortgage deal that suits your needs and one that you can afford. Before finalizing on a deal, ask the lender as many questions as you can, to make sure that there are no hidden fees and that you completely understand the terms and condition of the deal.

Hope this information will help you in getting a good deal.