Mortgages
ABC's - Mortgages Are Not Created Equal
The
term of the mortgage -- This describes the amount of time it
will take you to pay off the loan's principal and interest.
Although short-term mortgages typically offer lower interest
rates than long-term mortgages, they usually involve higher
monthly payments. On the other hand, they can result in significantly
reduced interest costs over time.
The
variability of the interest rate -- There are two basic types
of mortgages: those with "fixed" (i.e., unchanging)
interest rates and those with variable rates, which can change
after a predetermined amount of time has passed, such as one
year or five years. While an adjustable-rate mortgage (ARM)
usually offers a lower introductory rate than a fixed-rate mortgage
with a comparable term, the ARM's rate could jump in the future
if interest rates rise. If you plan to stay in your home for
a long time, it may make sense to opt for the predictability
and security of a fixed rate, whereas an ARM might make sense
if you plan to sell before its rate is allowed to go up. Also
keep in mind that interest rates hovered near historical lows
in recent years and are more likely to increase than decrease
over time.
Points
-- Points (also known as "origination fees" or "discount
fees") are fees that you pay to a lender or broker when
you close the deal. While a "no-cost" or "zero
points" mortgage does not carry this up-front cost, it
could prove to be more expensive if the lender charges a higher
interest rate instead. So you'll need to determine whether the
savings from a lower rate justify the added costs of paying
points. (One point is equal to one percent of the loan's value.)
How
Much Would You Save?
A homeowner with a 30-year, $200,000 mortgage charging 8% interest
would pay $1,468 each month. The table below illustrates the
potential monthly savings and the various break-even periods
that would result from refinancing at different rates.
Rate After Refinancing New Monthly Payment Monthly Savings Months
to Break Even*
7.5% $1,398 $70 29
7.0% $1,331 $137 15
6.5% $1,264 $204 10
6.0% $1,199 $269 8
5.5% $1,136 $332 7
5.0% $1,074 $394 6
*Assumes
$2,000 closing costs. Rounded up to the next highest month.
A Closer Look at Mortgage Fees
Using data collected during 2003, researchers at Bankrate.com
determined the average fees charged to consumers who borrow
money to buy a home. Based on a loan of $180,000, the fees broke
down as follows:
Average Lender/Broker Fees
Administration fee: $336
Application fee: $205
Commitment fee: $498
Document preparation: $194
Funding fee: $228
Mortgage broker fee: $839
Processing: $320
Tax service: $73
Underwriting: $269
Wire transfer: $31
Third-Party Fees
Appraisal: $327
Attorney or settlement fees: $445
Credit report: $29
Flood certification: $17
Pest & other inspection: $68
Postage/courier: $45
Survey: $174
Title insurance: $605
Title work: $200
Government Fees
Recording fee: $76
Various taxes: $1,339
reprinted from Yahoo.com
