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Comparing mortgage loans

So, you have narrowed down what kind of mortgage you want and are ready to compare prices. Ordinarily this may seem like the easy part of the mortgage loan selection process, but an article located on mortgage-x.com, titled, “How to Compare Loans among Different Lenders?” offers advice for potential mortgage borrowers of how to really find the best possible loan.

The most important thing to know about comparing loans is that they consist of more than just interest rates. You should understand that loans include a quoted rate, points and closing costs.

“Points are an up-front fee paid to the lender at closing. Each point equals one percent of the loan amount. Points are charged, or paid, to lower or increase the rate on the loan. Most lenders will allow you to choose amongst a variety of rate and point combinations for the same loan product. Therefore, when comparing rates of different lenders, make sure you compare also the associated points.”

First you should understand closing costs. Closing costs consist of loan related fees, title and escrow charges and transfer charges. These fees can add thousands of dollars to the cost of your loan.

It is important to compare loan related fees, closing costs, when comparing lenders. These fees are dependant on the lender and are subject to change, whereas other fees are charged by the government and are consistent throughout every loan.

“Secondly, when comparing loans of different lenders you need to thoroughly investigate and compare all loan features: maximum LTV, mortgage insurance payments (if any), credit and cash reserve requirements, qualifying ratios, etc. Pay special attention to the presence of prepayment penalties and the availability and terms of conversion options (such as rate reduction option, or option to convert an ARM to a fixed-rate mortgage).”

The third thing you should do when comparing loans is to find out the lock-in period. During this period, quoted interest rates and points will be guaranteed. Lock-in period are usually offered in segments of 30, 45 and 60 days. A longer lock-in period usually results in raising the price of the loan. This period should be long enough to allow for settlement before it expires.

The final thing to know when comparing the same loan from different lenders is to make sure that you are comparing interest rates, etc. on the same day, since rates are always changing. Quotes from the same lender can change within the span of a couple of days.

In recapping how to compare mortgage loans, you should do three main things; First, “fix all lenders at one interest rate and lock-in period,” then you should “add up the total lender fees for that rate including points and loan related fees” and lastly, you should know that “the lender that has lower lender fees has a cheaper loan than the lender with higher fees.”

If you are comparing the same loan with same interest rate, lenders fees will determine which lender to go with. Do the math.

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