The only thing that most people care about before signing a mortgage loan is the monthly payment. However, this is not the only important factor you should consider. To avoid any surprises, you must ask any mortgage-related questions that come to your mind. Today, we are sharing some additional questions that you must ask of your mortgage lender in advance so that you are secured and well-informed.
- What type of mortgage loan is best for me?
Different kinds of mortgage loans are available to meet the unique requirements of borrowers. For instance:
- Fixed-Rate Mortgage – the interest rate never changes until you repay the mortgage loan fully
- Adjustable-Rate Mortgage – the interest rate varies based on the market but not usually within the first five years
- Interest-Only Mortgage – need to pay the loan interest only for a certain period. The principal amount is repaid in subsequent payments or a lump sum at the stipulated date.
- Adverse Amortization Mortgage – the unpaid interest is added to the balance of the outstanding principal amount.
Each of the mortgage loans comes with its pros and cons. Ask your lender to explain each of them so that you can determine which one is right for you.
- What is the Interest Rate and Annual Percentage Rate (APR)?
Interest Rate is the amount you need to pay each year to borrow the money. It doesn’t include any fees or charges.
On the other hand, the Annual Percentage Rate is the amount that reflects different costs, such as interest rate, mortgage broker fees, and other additional charges that you may need to pay for securing the loan. Consequently, the APR is always higher than the interest rate.
Before choosing the best mortgage loan for you, you must know both of these rates. Be careful while:
- Comparing the APRs of different adjustable-rate loans
- Comparing the APRs of fixed-rate loans with APRs of adjustable-rate loans
If your priority is the monthly payment, you should focus on interest rates. However, if your priority is the overall mortgage loan amount, you should focus on the APR.
- Is there any grace period after signing the mortgage paperwork to back out of the mortgage without a penalty?
Not many people know that they have the right to cancel certain types of mortgages without a penalty after signing the mortgage paperwork. Verify with your mortgage lender if their mortgage policies allow you to do so.
If yes, then ask:
- How much grace period do they provide to reconsider the decision?
- Are there any conditions that can influence the applicability of the grace period in your case?
- What do you need to do if you decide to back out? Is there any paperwork? What mode of communication should you use to notify the mortgage lender?
- Is there any penalty for the early mortgage payout?
Repaying your mortgage loan in full as early as possible seems like the best economic decision. However, some mortgage lenders penalize their borrowers in case of early payout. Ask them how they calculate the penalty and at what rate.
Prepayment penalties can be calculated based on a specific percentage of a mortgage loan or the equivalent of a certain number of monthly interest payments.
Some penalties are applied only during the first two to five years. So, get the complete clarification because it can save you thousands of dollars.
- Do I need to get Private Mortgage Insurance?
You might need to get Private Mortgage Insurance (PMI) when you put down less than 20% on a conventional mortgage loan. It is meant to protect your lender in case you default on a mortgage loan.
Besides, you should also ask how much PMI will affect your monthly payment and see if it is better to make a larger down payment (if you can) or consider switching loan programs.
Happy Mortgage Shopping!