When shopping for a home loan, it is natural for buyers to focus more on the interest rate. If this m,is the same for you, you need to assess the loan carefully — not just at the rates, but the entire offer.
The annual percentage rate (APR) can be beneficial when comparing home loan rates. Do note that while it is supposed to include all the costs associated with a mortgage, it does indicate how much the loan will cost for the long term. VIP Mortgage and other mortgage brokers in Phoenix also note the many lenders’ exercise flexibility when deciding which fees to include in the APR.
Get an Estimate and Look at Your Monthly Payment
To get a clear idea of the expenses, request for lender’s loan estimate (formerly known as Good Faith Estimate), which include a list of all fees the lender will charge you. You should also look at your actual monthly loan payment, including the interest and private mortgage insurance (PMI), which is required if your down payment is less than 20%.
PMI can add several dollars to your monthly loan, beyond taxes, principal, and interest. If you make a smaller down payment, your monthly mortgage payment will be higher (and vice versa). If a lower interest with a certain lender can save you $20 monthly yet has a PMI of $50 or more than what another lender offers, then the lowest rate may not be the cheapest option.
Consider the Type of Interest Rate and Loan Term
There are two types of the interest rate: fixed rate and adjustable rate. A fixed-rate loan has a rate that will remain constant throughout the loan, while an adjustable-rate mortgage has a rate that is fixed for a limited period and may rise and fall depending on the market trend.
The lower initial rate of an ARM may make sense if the rate is locked for five years and you plan to sell the home before that. If you hope to keep the house in the long run, a fixed-rate loan is a wise choice. You should also consider the length of the mortgage. Shorter loan terms have a higher payment, with less interest paid over the loan’s life. This is the opposite for longer loan terms.
Your goal should be focused on getting a monthly payment that you can comfortably afford. You shouldn’t make your decision based on just the interest rate, as you also need to consider the mortgage insurance and term, which could affect your monthly payment. Contact a reliable mortgage broker today to learn more about your options.