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A Primer on Understanding Rates, Points, Fees

News | 29th Jun 2012
Understanding what mortgage to choose is crucial. However, it’s equally important to understand that your mortgage comes with some associated costs. Until the mortgage is paid off, you’re going to pay a lot of money on a monthly basis.

The purchase points 

The discount points, buy – down or the purchase points, are an important fee that one pays to the lender. The due date is at closing in order to lower or buy – down the interest rate. A point represents 1% of the loan amount. For example, if your loan is $100,000, one point is $1,000. The interest rate is going to be lower if you buy more points. However, when the closing is done, you will have to pay more.
Should you purchase points? How many? This decision depends on the time you’re planning to live in that house. Also, a very important factor is the money you can pay on a monthly basis for the mortgage. In case you want to live in that house over 5 years, then purchasing points is a good idea. The interest rate of a loan can be lower if you plan to stay in a house for a prolonged period of time.

The interest rate

The interest rate is the fee charged for the mortgage. The lender charges you with that rate for buying a home with his money. The interest rate is related to your monthly payment. The rule is that the monthly payment rises if the interest rate is very high.
Interest rates for the mortgages change on a regular basis. Sometimes they change hourly or daily. If you obtain a certain interest rate after talking with a lender, it doesn’t mean that on the closing date you’ll get the same rate. This will happen only if you and your lender lock the rate. This means that you can get the loan with the interest rate you established in the very beginning. You can lock in for 60, 45 or 15 days. It is going to be more costly if you lock-in earlier, because it’s risky for the lenders.

The fees

When obtaining a mortgage, there are usually some fees that come with it. They cover the costs of underwriting and processing the loan. Some of these fees encompass paying for the house appraisal and the property value (in order to close a mortgage you need an appraisal), purchasing the land survey, or making sure that the home title is clear and free.
The decision of getting a particular mortgage is determined by the lender, because the lenders can charge diverse sums. Some of them choose to charge lower closing fees, but they will impose a higher interest rate, making you to pay more over the lifespan of the loan. However, the needs of every person are different. Certain individuals want to pay less at closing and more on the long run. So, before getting a mortgage loan it’s important to understand all the details of the transaction. Talk it over with lenders and try to understand mortgage costs, and ensure there are no hidden fees and costs.

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