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You should do this

Are you about to get an Orlando mortgage? Take a long breath. Get ready to spend a little bit of time doing your homework. Three or four hours of research may end up saving you thousands of dollars now, and tens of thousands of dollars over time. Orlando home financing can be intimidating, but it’s not rocket science. A few simple considerations can make a world of difference.

Getting started

Educate yourself. Get several quotes. Orlando mortgage brokers will generally offer a better deal than a bank, but it doesn’t hurt to call a bank or two for comparison as well. A good mortgage broker will spend as much time with you on the phone as you need. And a truly professional mortgage broker will ask enough questions to understand your goals. If you don’t feel good about a conversation, trust your instinct; cross them off your list and move on.

Everything needs to be in writing

Be sure to ask for Good Faith Estimates. There can be quite a few costs associated with getting a mortgage. You want to see every one. Comparing Good Faith Estimates can be challenging because different mortgage lenders often use different terminology. Don’t let that stop you. It’s also a good idea to ask the mortgage broker if there are any additional costs that are not shown on the estimate.

Disreguard the APR

APR, or Annual Percentage Rate, was originally designed to allow borrowers compare mortgages. I won’t go into the mathematics involved, but in principle APR was a good idea. In real world use it has turned out to be useless. Lenders do not all use the same inclusion methods in calculating APR. To add to the confusion, adjustable rate mortgage calculations are notoriously misleading. But that’s okay! APR involves two variables, note rate, and closing costs, and all you need to see is on the Good Faith Estimate.

Rate versus Points

It’s my experience that when people are shopping for a new Orlando home mortgage they often fixate on the interest rate, and overlook the points. Interest rate and points are inversely related. Unless you specify that you don’t want to pay points a lender is likely to price your loan with one or two points. This will make your rate lower, but it may not be a better deal. If the lower rate saves you fifty dollars a month on your payment but you pay an extra five thousand dollars in points, it will take you eight years to catch up with the cost of the points. Do the math.

The margin trap

Many adjustable rate mortgage programs now offer a variety of margins for you to choose from. This means that you may have an opportunity to control your future interest rate. Sooner or later all adjustable rate mortgages adjust to an interest rate that is equal to an index plus the value of your margin. You have no control over the movement of the index. But if you can get a lower margin you will have a lower rate (once your loan starts adjusting) for as long as you have your loan. Your good faith estimates should all state the margin for your loan. Phone the individual mortgage brokers and tell them you are interested in a lower margin. Don’t be shy. It’s your money!

The Good and bad about Pre-payment penalties

A lot people are averse to considering a loan with a prepayment penalty. But it is worth looking into. Adding a prepayment penalty to your loan may reduce your interest rate significantly. Prepayment penalties typically expire after three years, but recently many lenders have started offering a choice of one, two, or three year penalties. Will you still be in the home past the expiration of the prepayment penalty? If you outlast the penalty you have reduced your monthly payment for as long as you have the loan. That can add up. And it didn’t cost a penny!

Choose wisely

There are an amazing number of mortgage programs to choose from these days. You can select a fixed or an adjustable rate mortgage. Or you might choose one of many hybrid fixed period adjustable programs designed to give the comfort of a fixed for a predetermined number of years before starting to adjust. Interest only options are available now on both fixed and adjustable rate programs. When selecting your mortgage program think about yourself. Any decision only makes sense if it makes sense in the context of your life.