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Interest Rate


Everyone wants to find the best interest rate when they begin shopping for a loan. However, interest rate offers are sometimes deceptive and can easily be manipulated for marketing purposes. Considering that an escrow can take 60 days or more, a good "qualifying" question when investigating interest rates, is "How long will you guarantee this rate?"

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Points

There are always costs associated with getting a loan. Charging "points" is one way to collect loan fees, with each point equaling 1% of the loan amount. Beware of those making a "too-good-to-be-true" offer to reduce or eliminate points. Because costs must be included somewhere, other fees may be inflated or tacked-on to compensate for no or "low" points.

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Fixed Rate vs. Adjustable Rate

Keep an open mind on this one... don’t decide what kind of loan you want until you have explored all of your options. No loan is universally "better" than another. Everything from your financial condition to the current state of the economy should be evaluated by a professional loan consultant to determine the correct loan for you.

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FHA Financing

Previously thought to be "poor man’s financing," the FHA loans of today sometimes offer flexibility and cost savings that are superior to conventional financing. To determine if you qualify for an FHA loan, be sure to select a lender that is HUD-approved and is experienced with the FHA process.

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Choosing Your Length of Loan

In recent years a 10-year loan has replaced the 15-year loan as the option that will save you the most money in interest, but it will subject you to the highest payment. The 40-year loan is a newer alternative providing the lowest payment but usually the highest interest rate. A 20-year loan has become a common choice to reduce interest cost while still providing a reasonable payment and the 30-year loan is still the most popular choice. You'll need a sharp pencil and an experienced loan consultant to assess your financial situation and goals in order to determine the best length of loan for you.

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Private Mortgage Insurance

PMI, Private Mortgage Insurance, might be just what you need to qualify for a loan. If you don’t have 20% percent for a down payment, PMI may give a lender the security they require to loan their money to you. Ask your loan consultant how PMI can actually help first-time buyers, or those looking to leverage their money with a low down payment.

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Refinancing

When changing the financing on your home for any reason, always compare the cost of that refinancing to the benefits. If you just want to lower your interest rate, be sure that refinancing costs don’t far exceed the benefit of reducing your rate. Or, if you want to access the equity in your home to free-up some cash, be sure that your loan consultant provides you with an analysis that fully explains the financial impact of a new loan compared to the terms of your existing mortgage.

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Your Own Bank

When selecting a lender, you may be inclined to consider the institution where you do your everyday banking in hope of getting a better deal and better service because they "know you". Unfortunately, this is not really the case. Virtually all residential lenders must follow the same rules to qualify borrowers and some banks have even stricter requirements. And due to their relatively high cost structure banks will often originate your loan through a remotely located, regional "call center" staffed by personnel with limited experience and training. The result often leads to an inferior customer service experience at a higher cost.

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Mortgage Brokers

Mortgage brokers are not limited to a single lending source. They can offer conventional loans, federally approved programs like FHA and VA and private investor programs. A full service mortgage broker can match your specific loan requirements with any lender, including government sources. As a result of the new National Mortgage Licensing System (NMLS) requirements, mortgage brokers must now meet more extensive licensing, training and education requirements than the typical bank loan originator. These licensing requirements combined with a lower cost structure means a mortgage broker can usually offer a better, more efficient experience at a price that will "beat the bank".

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