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Mortgage Comparison Shopping

Learn How to Compare Mortgage Home Loans - Comparing loan plans can help you get a better deal. Whether you begin your shopping by reading ads in your local newspapers, searching on the Internet, or looking in the phone book, ask lenders to explain the best loan plans they have for you. Beware of loan terms and conditions that may mean higher costs for you. Get answers to these questions and use the worksheet to compare loan plans.

The Interest Rate/s and Payments
  1. What are the monthly payments? Ask yourself if you can afford them.
  2. What is the annual percentage rate (APR) on the loan? The APR is the cost of credit, expressed as a yearly rate. You can use the APR to compare one loan with another.
  3. Will the interest rate change during the life of the loan? If so, when, how often, and by how much?
The Terms of Mortgage Loan
  1. How many years will you have to repay the loan?
  2. Is this a loan or a line of credit? A loan is for a fixed amount of money for a specific period of time; a line of credit is an amount of money you can draw as you need it.
  3. Is there a balloon payment--a large single payment at the end of the loan term after a series of low monthly payments? When the balloon payment is due, you must pay the entire amount.
The Points and Fees
  1. What will you have to pay in points and fees? One point equals 1 percent of the loan amount (1 point on a $10,000 loan is $100). Generally, the higher the points, the lower the interest rate. If points and fees are more than 5 percent of the loan amount, ask why. Traditional financial institutions normally charge between 1 and 3 percent of the loan amount in points and fees.
  2. Are any of the application fees refundable if you don’t get the loan?
  3. How and how much will the the lender or broker be paid? Lenders and brokers may charge points or fees that you must pay at closing or add on to the cost of your loan, or both.
Penalties
  1. What i the penalty for late or missed payments?
  2. What is the penalty if you pay off or refinance the loan early (that is, is there a pre-payment-penalty)?
Credit Insurance
  1. Credit insurance may be a bad deal for you, especially if the premiums are collected up-front at the closing and financed as part of the loan. If you want optional credit insurance, ask if you can pay for it on a monthly basis after the loan is approved and closed. With monthly insurance premiums, you don't pay interest and you can decide to cancel if the premiums are too high or
  2. if you believe you no longer want the insurance.
After you have answers to these questions, start negotiating with more than one lender. Don’t be afraid to make lenders and brokers compete for your business by letting them know you are shopping for the best deal. Ask your lender to lower the points, fees, interest rate.

Once You’ve Selected a Lender, Get the Following
  1. A “Good Faith Estimate” of all loan charges. The estimate must be sent within 3 days of applying.
  2. Blank copies of the forms you’ll sign at closing, when the loan is final. Study them. If you don’t understand something, ask for an explanation.
  3. Advance copies of the forms you’ll sign at closing with the terms filled in. A week or two before closing, contact the lender to find out if there have been any changes in the Good Faith Estimate. By law, you can inspect the final settlement statement (also called the HUD-1 or HUD-1A form) one day prior to closing.
Think Twice before You Sign
  1. Have a knowledgeable friend, relative, attorney, or housing counselor review the Good Faith Estimate and other loan papers before you sign the loan contract. Be sure the terms are the same ones you agreed to. For example, a lender should not promise one APR and then--without good reason--increase it at closing.
  2. Refer to the list of questions you’ve written down. Ask where these terms are covered in the loan contract. And ask for an
  3. Get an explanation of any dollar amount or term you don’t understand. Don’t let anyone rush you into signing the loan contract.
  4. Make sure all promises, oral and otherwise, are put in writing. It’s only what’s in writing that counts.
  5. Get a copy of the documents you signed before you leave the closing.
You Have 3 Business Days to Cancel the Loan

If you're using your home as security for a home equity loan (or for a second mortgage loan or a line of credit), federal law gives you 3 business days after signing the loan papers to cancel the deal for any reason without penalty. You must cancel in writing. The lender must return any money you have paid to date.