Mortgage Refinance Guide

If you are in the process of taking out a mortgage or refinancing you current mortgage do not sign with a lender until you have reviewed this checklist.  Mistakes during the mortgage process can cost you thousands of dollars; here are tips to avoid making mistakes.

The mortgage process can be overwhelming.  Interest rates, fees, terms, and conditions; it is a lot to take in at one time.  When there is no one in your corner how do you know that the lender isn’t taking advantage of you? 

Your best defense against being taken advantage of by a mortgage broker or lender is to educate yourself.  You need to learn the basics and know what to look for before singing the mortgage contract.  Here is what you need to understand before signing on the dotted line.

Understand the Interest Rate

The interest rate you choose will determine how your monthly payment is calculated.  Mortgage interest rates fall into two categories:  fixed interest rates and adjustable interest rates.  If you choose a fixed interest rate you will always know what your monthly payment will be.  If you choose a mortgage with an adjustable interest rate the payment will change from one year to the next.  The problem with adjustable interest rate mortgage is your monthly payment could increase significantly when interest rates go up.

If you choose an adjustable rate mortgage find out if there are caps on how much the rate can go up.  Some lenders provide caps limiting the amount the interest rate can go up at one time.  Other caps limit the amount the interest rate can go up over the life of the mortgage.  If your adjustable rate mortgage does not come with caps on the interest rate changes you might want to reconsider signing with that lender.

Does the Mortgage Have Prepayment Penalties?

Mortgage lenders like prepayment penalties.  This penalty is a fee you have to pay if the mortgage is paid off before the end of the term.  Prepayment penalties are designed to discourage refinancing. If you need to sell your home down the road and your mortgage comes with a prepayment penalty you will have to fork the money over to the lender before selling your home.  If the lender you are considering is requiring a prepayment penalty take your mortgage shopping somewhere else.

Mortgage Term Length

The mortgage term is the length of time your lender gives you to repay the loan.  If you choose a mortgage with a shorter term, such as 10 or 15 years, your mortgage payment will be higher; however, shorter term mortgages come with lower interest rates.  With a short term length you will also build equity in your home at a much faster rate.

If you are looking for a mortgage with the lowest payment you will need to choose the longest term length possible.  Mortgages with longer term lengths come with higher interest rates because they represent a higher risk for the lenders.

Educating yourself before shopping for your mortgage could save you thousands of dollars.  To learn more sign up for a free mortgage guidebook: Albuquerque Mortgage Refinance