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Thursday, July 11, 2013

Important issues to raise with mortgage lenders

The largest loans people take are often mortgages
APRs include fees incurred through the life of a mortgage
In most cases a mortgage will be the largest and most-important loan that anyone takes out in their entire life so it is important to do an amount of research equal to the task. This is not like applying for a credit card, rather something that should be taken very seriously and with a lot of knowledge behind you before you make the final decision. 

The internet is the best place to start, with online guides to every mortgage on the market and comparison websites that reveal who has the best mortgages on offer. All of these sites have guides to the terminology being used and the types of mortgage available and it is worth reading up on all this stuff.

Ultimately though, you will inevitably need to go and speak to a number of different mortgage lenders and financial institutions and when you do it is crucial that you go into these interviews armed with the right questions to ask. This article will outline the most essential things to ask them about the mortgage they are offering:

1. What is the exact APR (Annual Percentage Rate) for this mortgage? 

This one seems obvious, but very often lenders will simply display the interest rate of their mortgage packages rather than the APR. The difference is that the interest rate quote does not come close to the actual figured that will  be charged because it does not include the fees that will be charged when the loan is set up nor the fees that will be charged throughout the life of the loan. Make sure you ask the lender if all interest rates, points and origination fees are included in the APR.

2. Am I going to have to pay origination or discount points? 

Sometimes, mortgage lenders  are able to quote people better (lower) mortgage loan rates by charging their prepaid mortgage points. It is crucial that you discuss with your potential lender how much you would need to pay in points in order to get the lower interest rated. Once you know this you are able to compare the fee to the savings and work out what works out as better value for you.

3. Do I have to pay to lock in that rate? 

If you want to fix your rate at a certain level then you will most likely have to pay some kind of lock-in fee. This is a judgement call - some people like the certainty of fixed rates and knowing that it can’t go up for a few years. But it can go for and against you. It might be that you lock in a rate only for interest rates to drop. 

4. Will I have to pay a fee for early repayment of the loan? 

Early repayment, along with refinancing of the loan are often sources of more fees and profits for mortgage lenders. They make their money over the entire length of the loan so if you wish to leave the loan early you will often be required to pay them a fee to do so. These prepayment penalties will usually be something along the lines of three to six months worth of interest although it has been known to be even higher than that. Make sure they give you a detailed break-down of these charges and penalties.

5. How long do they take to process the loan? 

People often neglect to ask this, but if the bank is operating in the midst of their ‘peak season’ for lending it might take a while to get the loan processed. This can be crucial when trying to secure a house so it is important to find out how long the whole process should take. 

6. What documents will they need to see?

And finally, ask the lenders what they will need from you if you decide to go ahead with the loan with their company. This is important because ever since the credit crunch and the bursting of the housing asset bubble lenders have become much stricter in their approval requirements. Consequently they are very specific in what documents they need to see and any deviation from their requirements will result in a rejected application. You might need to gather originals of documents you only have copies of or might need to contact other credit companies to get copies of stuff so it is useful to draw up that list at this early stage in order to be ready.

About the author: Esther is a financial journalist and business blogger based in Chicago. She writes about all areas of business and personal finance affecting the consumer from credit and store cards to tax relief and from consumer rights to how to raise small business capital.

 Image attribution: woodsy; RGBStock.com license

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