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WHERE
DO I GO TO GET A MORTGAGE?
Banks are no longer the only resources for
obtaining a mortgage. Virtually all financial services
companies, including credit unions and brokerage firms,
offer mortgages. Other sources include mortgage companies,
developers and sellers. The internet is a great way to begin
your research of lenders, interest rates and mortgage
information. Then contact professionals or ask friends who
have had good borrowing experiences for recommendations.
WHAT TYPES OF MORTGAGES ARE
AVAILABLE?
The two most common types of mortgages are fixed-rate loans
and adjustable rate mortgages (ARM). With a fixed-rate
mortgage, the interest rate stays the same for the life of
the mortgage. This means your monthly principal and interest
payments remain constant for the term you select. The
interest rate on a fixed-rate loan is typically higher than
for an ARM.
With an ARM, the interest rate
changes on a regular schedule, such as annually, based on a
pre-determined index. An ARM typically has an annual cap
that limits how much the rate can change in a year and a
lifetime cap that limits the change over the life of the
loan. Because ARMs offer lower initial interest rates, you
typically can afford a larger house for the same monthly
payment. You must, however, be prepared for the possibility
of rising monthly payments if interest rates go up.
There are hybrid loans that
combine features of both fixed and adjustable rate loans.
For example, a hybrid loan may offer an initial fixed rate
that is in effect for, say, three years, at which time the
rate is adjusted to the market rate.
WHICH
MORTGAGE IS BEST FOR ME?
There is no simple answer to this question. The right
mortgage for you primarily depends on your financial
situation, how long you intend to keep the house and whether
you are comfortable with having a changing mortgage. Some
mortgages have prepayment penalties if you pay off the
mortgage before a specified time.
WHAT
ARE POINTS?
Points are up-front interest charges paid to the lender that
allow you to lower your interest rate. They are essentially
prepaid interest, with each point equaling one percent of
the total loan amount. Paying points makes sense if you plan
to stay in your home for several years because the amount
you save with a reduced interest rate increases every year
you hold the mortgage. Points paid on a mortgage loan for
the purchase or improvement of a home and secured by a
personal residence are deductible in the year paid.
WHAT'S
INCLUDED IN MY MONTHLY MORTGAGE PAYMENT?
The two primary components of your mortgage payment are
principal and interest, but most lenders include real estate
taxes and homeowner's insurance as well. If your down
payment is less than 20 percent, you also may be required to
pay private mortgage insurance that protects the lender
against default.
WHAT IS THE PROCESS FOR ACQUIRING A
MORTGAGE?
The first step is to complete a loan application, which asks
for information about your income, employment, assets and
liabilities. The lender will ask for documentation to verify
this information. A professional appraisal will be ordered
to determine the home's market value.
It can take the lender anywhere from two to six weeks to
evaluate your application and complete the appraisal.
Interest rates can fluctuate during that time, so find out
if the lender allows you to "lock in" a specific interest
rate for a certain period. Once a loan decision is made, the
lender will notify you of the outcome and a closing date
will be set.
Brought to you by the North Carolina
Association of Certified Public Accountants in cooperation with the AICPA.
©2007 The American Institute of Certified Public Accountants;
www.360financialliteracy.org
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