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Loan Shopping Tips

When you're comparing mortgage rates and programs, the following information can come in handy.

Ask about Points

When responding to an ad or calling a lender to inquire about rates, be sure to check if the quoted interest rate reflects payment of points. Many loan programs allow you to receive a discounted interest rate by paying a fee in points.

One point equals 1% of the loan amount, and the more points you can or wish to pay, the more you can discount your rate.

Paying points is not a requirement, it's just an option lenders offer to accommodate the immediate or long-term cost concerns of home mortgage customers.

The Annual Percentage Rate is the Key

When you're shopping for a home mortgage, make sure you ask lenders for the annual percentage rate (APR) as well as the interest rate, so you compare it accurately to other available mortgage rates. While the interest rate determines the amount of your monthly payment, the APR is the total finance charge to the amount of your loan, spread over the term of the loan, expressed as a percentage. So the APR is always higher than the quoted daily interest rate.

The APR reflects the true cost of a mortgage loan as a yearly rate because, in addition to the rate of interest charged on the loan, it includes certain other prepaid finance charges. These charges may include, but are not limited to, origination fees, loan discount points, private mortgage insurance premiums and the estimated interest, prorated from closing date to month end.

Know When to Lock and When To Float

Any lender can quote you today's interest rates, but an educated homebuyer is more concerned with what the interest rate will be at the time the loan closes. That's why it's important to ask lenders how long they will guarantee the interest rate they quote. Typically, lenders guarantee a rate for rate lock periods of 30 to 120 days, and also offer an option that allows you to float the rate, so you can follow interest rates and lock in anytime up to five days before your closing.

Be sure to ask your lender about available rate lock and float options as well as any fees that may be charged for these options. Then think about how or if these options will accommodate your needs. Some people need more time to move out of their apartments or sell their current homes.

A longer rate lock period protects your rate for a longer length of time, which can be beneficial should rates increase before your closing. But if you lock in your interest rate and rates decrease, your loan will close at your originally locked-in rate. No one knows if rates will go up or come down, so it's impossible for a home mortgage consultant to tell you whether or not you should lock or float your rate. The decision is yours.

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