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Questions to Ask Your Mortgage Lender

Are historically low interest rates and a buyers’ market tempting enough to put you into the home buying mood? If you’re getting ready to take advantage of the buyers’ market, you should also be asking questions about the right home loan. Here are some good questions to get you started.

What is the interest rate of the mortgage?

Depending on the type of mortgage, the answer to this question may not be as simple and straightforward as you may think. Besides the traditional fixed rate mortgage loan, in which the interest rate never changes, there are a number of adjustable rate loans on the market.

When evaluating the interest rate offered by a lender, it is important to look at not only the interest rate you pay today, but also the interest rates you may be asked to pay later. Many first time home buyers allowed themselves to be talked into adjustable rate mortgages with artificially low “teaser” rates, and as those interest rates adjusted upward they found themselves unable to pay the new, higher mortgage payment. Read the fine print carefully to determine the maximum amount the mortgage can adjust, each year and over the life of the loan.

What about discount and origination points?

Some lenders will charge prepaid interest points as a way to lower the interest rate and make their offer look more competitive. Homebuyers should be on the lookout for points that have no benefit, and they need to find out how many points will need to be paid.

How about closing costs?

There are all sorts of charges and fees associated with the mortgage process, but not all lenders will charge all these fees. Since, points, closing costs and other charges can quickly add up, be sure to ask about fees and expenses, and get any promises made in writing. Lenders are required by law to provide potential mortgage clients with a written good faith estimate of the closing costs within three days of the receipt of the loan application.

When can the interest rate be locked in and what are the associated charges?

The interest rate may fluctuate between the date of the application and the date of the closing, and those changes could affect your monthly payment. To prevent the interest rate from rising unexpectedly, many borrowers will seek to lock in the rate for a specific period. Find out if there are any fees associated with this lock-in.

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