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Chapter 2

KNOW YOUR MORTGAGE

When considering your financing options, you'll want to review many different things about the loans offered to you. In this section you'll find a basic overview of home loan features and the things you should consider as you shop for a lender or loan..

Know Your Lender

Home loans are available to consumers from thrift institutions – commercial banks, mortgage companies, credit unions and mortgage brokers. You may also obtain a loan through a mortgage broker. A mortgage broker is unlike other lenders in that the broker does not lend money to you directly. A broker will help find you a lender and secure the terms of your arrangement.

Mortgage Broker vs. Traditional Lender

A broker may have access to several lenders and therefore can offer you a wider selection of loan products and terms. He or she can help you shop for the best deal based on your circumstances. (A Broker is not obligated to find you the best deal possible, so be sure to ask questions.)

Even if you decide to work with a traditional lender, ask if a broker is involved. Many financial institutions act as both lenders and brokers, so you should ask if a broker is involved in any loan you are offered.

 

It's always a good idea to check out the reputation of any lender you consider working with. The National Association of Mortgage Brokers or the Better Business Bureau can tell you if a lender is in good professional standing.

For their work, brokers are paid a fee in addition to the lender's origination fees. Brokers set their own compensation, so you'll need to ask anyone you speak to how their fees are determined.

The best type of loan for you will likely be based on the down payment you can afford and the length of time you plan to spend in your home.

 

If you're considering a variable rate mortgage, you'll want to be sure to understand what a rate increase could do to your monthly payment. Be sure to ask when and how your loan payment will vary.

Know Your Loan Types

 

Not all home mortgages are structured the same. There are several borrowing options for home buyers and the type of loan that you choose should work for your unique financial situation.

 

Fixed Rate (Traditional) Loan

 

These loans are usually structured with repayment terms of 15, 20 or 30 years. The lender will agree to charge a fixed interest rate over the life of the loan. With this loan type, your monthly mortgage payments will remain the same for the length of the term.

 

Adjustable-Rate Loans (ARMs)

 

Also known as variable-rate loans, ARMs often offer a teaser rate for the initial period of the loan. This introductory interest rate is usually lower than rates offered for fixed rate mortgages. The interest rate will fluctuate over the life of the loan based on market conditions. Changes in rate happen at certain time periods, and the lender can set both a maximum and minimum on the rate of fluctuation.

Chapter 2 Page 4