4 Questions You Need To Ask Before Applying for a Mortgage

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Today many people are taking advantage of the new Home Affordable Refinance Program (HARP). I recently refinanced my home mortgage and reduced my interest rate by 1%. My new payment is almost $200 less. It’s quite a savings.

When applying for a new mortgage most people just focus on the lower percentage rate and the new payment, but there is more you need to consider. All loans have associated costs and fees included in the closing costs; It’s important to be aware of these costs before you sign on the dotted line.

With all the primary focus on the monthly payment and interest rate the average consumer forget to dive down and ask all the important questions. I have listed 4 questions that I think are important to be aware of before you accept your new mortgage.

How Long does the process take?

It’s important that you find out how long the average time it takes to arrive at closing. You will be asked by the mortgage company during the application process if you want to lock in your mortgage interest rate. You have the choice of locking it in at the time of application or you wait and do it at a later time. Deciding to lock it in depends on the time till closing occurs. If it will be soon then why not lock it in. If the time may be  extended then it may pay to wait and secure a lower interest rate.

This decision all depends on if rates are trending down or up. Waiting may get you a lower rate. But it depends on the time till closing occurs. So knowing this period of time will help you make a better decision.

Do You Have a Prepayment Penalty?

There are some lenders who have written in their mortgage a restriction that charges you a penalty fee if you pay off your loan early or during a particular period of time. This stipulation is included in the mortgage papers to benefit the mortgage provider. It makes sure that you are encouraged to keep the loan a certain period of time to ensure a profit for the mortgage company.

Find out if this stipulation is included in your mortgage papers beforehand,  so you will be able to decide if you can live with this restriction.

If I have to Pay Points on a Loan, How long will it Take to Break Even?

Some people avoid paying points at all costs. But there are those who pay this money so they can get a lower payment. Some may actually need to do this so the payment is affordable. You need to do the math and see if this option is really beneficial and makes sense. To see if paying points is a good idea you need to divide the upfront cost of the points by the amount you are saving monthly with the lower rate.

This will show you how many months it will take you to break even. It will tell you if it is actually worthwhile to do it.

What are all the Costs of Involved in the Loan?

Don’t let the lower interest rate and payment distract you by its overall benefits. You need to get down into the details of your new mortgage. You need to ask your lender, before accepting their offer, what are my costs? What you need to know is the origination fees, discount fees to lower interest, the appraisal, the credit report, administrative fees, document prep fees, closing costs, title insurance, and any other fee the lender charges upfront.

All lenders are compelled by law to furnish you a Good Faith Estimate. This details all out-of-pocket expenses. Carefully examine these costs and  determine if they are reasonable. You can decide if your lender is to high in their fees. If they are too expensive, you can negotiate for a reduction or just find another lender.

A mortgage is a serious contract you are signing up for. You need to ask the right questions at  scottsdale mortgage brokers so you know if it is truly right for you and your situation.