Shopping for a mortgage is not very different than shopping for a tangible thing such as a car or a television. Just as you would look at the cars of several different manufacturers and explore the availability of options and extras, so too can you do this with mortgage shopping. And like a good shopping experience, getting the best price and deal through negotiation is always possible.
Do not turn limit your thoughts to banks when you think of mortgage institutions. A number of options are available to you such as thrift institutions and credit unions, so shopping around might lead to a more attractive offer from a motivated lender. Consider using a mortgage broker as well. He may have access to several lenders and can save you a lot of the legwork. Shop around for various mortgage brokers just as you would with financial institutions to select one that best answers your needs.
Rates and Terms
The two major types of mortgages are the fixed-rate and adjustable-rate mortgage. A fixed-rate mortgage carries an interest rate that remains unchanged for the entire duration of the mortgage, with terms offered anywhere from 15 to 30 years. A 15-year mortgage will typically have a lower interest rate than a longer-term mortgage. Your monthly payment will be higher due to the shorter term, but you will pay less interest over the entire loan period. A 30-year term will help you carry a lower mortgage payment but you will have paid more interest in total than with a shorter term loan.
Fees and Costs
Your mortgage will come with various fees, such as points, which are expressed as a percentage of the mortgage loan. Other fees could include underwriting fees and closing costs. Ask the lender or mortgage broker to provide a comprehensive table of all fees so that you may easily compare them.
The lender will require a down payment so that you have some equity in your home initially. The minimum down payment for a loan depends on the lender, with some requiring 20 percent down. You might have to pay at least 5 percent of the price of the house, unless you get one backed by the Federal Housing Administration, or FHA. The bigger the down payment, the lower your monthly payment and therefore the less you will pay in total interest over the lifetime of the loan.
If your down payment is less than 20 percent of the mortgage amount, the lender will typically require you to purchase private mortgage insurance, typically referred to as PMI, which protects the lender against the risk of you defaulting on the loan. The cost of PMI is generally added to your mortgage amount and you pay for it with a slightly higher monthly mortgage payment.
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