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Who'll be my lender?
Cynthia E. Brodrick
You'll want to shop around for your mortgage. Hey,
if you're going to comparison shop for cookies and milk at the grocery
store, you ought to take this $100,000 mortgage seriously, too.
Another reason to compare lenders is that this is going to be a
long-term relationship -- as long as 30 years -- so you want to
be happy with their service.
You want to find out the answers to two important
money questions:
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What interest rate are they
charging for fixed and ARM loans? This can vary in small increments
from bank to bank. You can check mortgage rates quickly at Bankrate.com
or by calling around to different banks and brokers. Rates are
important even though no matter what you do you'll actually
end up paying more in interest than the actual price of the
house. Tenths of a percent really do matter over the
long run.
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What do they charge for a lower-rate
loan? You can save yourself some of that long-term interest
by "buying" a lower mortgage rate. Lenders call this paying
discount points. Each point is worth 1 percent of the value
of the loan. If you plan to stay in a house more than a few
years, it might be worth ponying up a few extra thousand at
the beginning to save even more in the end.
A Good Faith Estimate can be your best tool for shopping
around, explains Anderson. You can get this piece of paper from
the lender when you pre-qualify. It says what you can expect to
pay -- in fees, points and origination -- for the loan. Dahlgren
agrees, saying these are good for comparing lenders and brokers:
"You can see the fee structure." You can save yourself some driving
time by getting them by fax or, if you apply online, by e-mail.
"Be very specific with questions," warns Anderson.
Ask for an amortization payment table that shows how principal payments
increase and interest payments decrease each month. Compare a 15-year
loan to a 30-year loan. Compare an ARM, a fixed rate and a 5/1 or
7/1.
Also, ask about prepayment options or penalties. When
you're paying back that mortgage, you could save money on interest
over the years by sending in extra money toward the principal each
month. But find out if the lender will let you do that. Anderson
explains that, should you pay off the loan too quickly, prepayment
penalties are the way a lender recoups the money he spent to maintain
the loan. Not to worry -- it's not likely you're going to pay off
a 30-year loan in less than 5 years. Anderson says you might find
that some investors will give a better rate for loans that won't
be prepaid. Do a little math; you might save more money this way
in the long run.
-- Posted: Aug. 26, 1999
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