Unless you’re planning to make an all-cash purchase (in which case you’ll be a very popular buyer!), you’re going to have to secure a mortgage. Though the process can be complex and daunting, it helps to understand what to expect and to take the time up front to really sit down and know what you want and need from your lender. This section is devoted to helping you reach both those aims.
In exchange for your mortgage, you will pledge your home as security for repayment of your loan. The lender agrees to hold the title to your property until you have paid back your loan plus interest. A mortgage loan is composed of two major components: principal and interest.
Principal is the actual amount of money you borrow. If you borrow $150,000, your mortgage principal is $150,000.
Interest is what you pay for the use of the money you borrow. How much you pay depends on a number of factors, including the interest rate, the type of loan and other factors, which are outlined in this guide. Interest can be deducted from your taxes, making it one of the most attractive practical benefits of home ownership. Your tax advisor will be able to provide more details about the tax savings benefits.
Amortization refers to the way in which the balance of principal versus interest changes over time. During the first few years of your mortgage (typically for the first 2 to 3 years of a 30-year loan) most of your payments will be applied toward interest. During the final years of your loan, your payments will be applied almost exclusively to the remaining principal. This process is called amortization.
How should I choose a lender?
Carefully! Look for financial stability and a reputation for customer satisfaction. Select a company that gives helpful advice and that makes you feel comfortable. It is best to select a lender that has the authority to approve and process your loan locally, so you can more easily monitor the status of your application and ask questions. Plus, it helps when the lender knows about local home values and conditions. Do research -- ask your agent, family and friends for recommendations.
What is the best way to compare loan terms between lenders?
Speak with companies by phone, in person, or search the Internet. In addition to your research, I can provide a variety of proven lender and mortgage options. While competitive rates are important, remember that most lenders get their money from the same sources and therefore essentially have the same rates. As a result, the decision often comes down to other factors.
The Interest Rate
Interest Rates are most important when you lock a loan. What is important is that you have a loan program that fits your particular financial situation and needs at the time you purchase your home. Remember that each 1/4 point (0.25%) may not have as much impact as you think.