you're buying a house or refinancing, there is more to a mortgage than the rate.
Here are eight questions to ask while mortgage shopping. You'll have to ask yourself
some of these questions; others can only be answered by mortgage professionals
1. How long do I plan to stay in the house?
That's often a hard question to answer. Try anyway because a lot of your decisions
depend on the answer.
"I always say, 'What's the game
plan? How long do you plan to be in the property?'" says Ellen Bitton, CEO
of Park Avenue Mortgage Group in New York.
The answer affects
whether you would be better off paying points to lower your rate, whether you
should get a fixed-rate or adjustable-rate loan, whether you should accept a prepayment
penalty. If you're thinking of refinancing, the answer helps you decide whether
you should refinance at all.
If you have no idea how long
you'll live in the house, keep in mind that homeowners stay in one residence for
a median duration of 8.2 years, according to 1998 U.S. Census data. In other words,
half of homeowners move within 8.2 years. The other half, naturally, stay in their
homes longer. Do you feel "average"? If so, maybe it means you'll stay
home for about eight years or so.
(FYI, with renters, the
median stay in one residence is 2.1 years.)
2. How much are
the costs of getting the loan?
When you apply for a loan, you'll get a federally
mandated document called the Good Faith Estimate of Closing Costs. It estimates
how much the lender will charge you for origination and discount fees, an appraisal,
a credit report, document preparation, title insurance, a pest inspection and
myriad other costs. Compare good faith estimates and especially take note of the
line that reads "Estimated cash at closing." That's an educated guess
of how much you'll have to pay out of your checkbook to get the loan.
How long will it take to break even?
If you're buying a home, how long will
it take to break even if you pay discount points to get a lower rate? If you're
refinancing, how long will it take to recoup the closing costs from your monthly
In either case, all you have to do is divide the
upfront cost (of discount points if you're buying a house and of all the closing
costs if you're refinancing) by the monthly savings you would get. That tells
you how many months it will take to break even. If it's going to take five years
to break even but you expect to stay in the house four more years ...
What makes me feel comfortable?
Bitton says some of her clients insist on
paying zero discount points, while others want to pay a lot of points to get absolutely
the lowest interest rate, "even if it takes four or five years to break even."
far as Bitton is concerned, there often is no right or wrong answer when people
ask whether they should pay discount points or choose a 15-year or 30-year mortgage.
"There's not just an objective, dollars-and-cents number," Bitton says.
"There's also the psychological factor. What are you going to feel comfortable
She has clients in their 70s and 80s who get 30-year
mortgages because that's what makes them feel comfortable. Some homeowners would
rather refinance once and never have to bother with refinancing again, so they
pay a lot of points for a rock-bottom rate. As a bonus, they have something to
boast about at cocktail parties. Other clients simply want the lowest possible
payments, so they snag an interest-only, five-year ARM. All understand what they're
getting into and have found their comfort zones.
continued at http://www.bankrate.com/brm/news/mortgages/20021003a.asp?page=default
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