By PAGE Editor

There is a small number of feelings that can compare to happiness when you buy a home - especially if it’s your first home. However, the important part of this process is the mortgage. Not all of us are financial experts, so for most people, it is hard to decide how to choose the right mortgage. Well-chosen mortgages can save you a lot of money over time, so let’s inform you on this topic as much as possible. Here are some key things you should consider when comparing mortgage rates.

Interest Rates

Interest rate is one of the most important things you should consider when comparing mortgages. Interest rate decides how much the whole borrowing will cost and has a big effect on your monthly payment and the total amount you will pay over the life of the loan. There are two main types of interest rates: fixed and adjustable. Fixed rates are usually the better choice, because they offer you the security of knowing your interest rate and monthly payments will stay the same for the whole time of the loan. There are few types of fixed rates, but as stated at https://www.alpinebanker.com/mortgage-rates-nj, a 30-year fixed rate is the most popular type of home loan. Their stability and security will help you plan your budget and future more easily. On the other hand, there are adjustable rates, also known as ARMs - they can change at any time based on market conditions. They do have lower initial costs, but they have a big risk of increasing payments in the future, so be careful here.

APR

APR, or Annual Percentage Rate, is one more important factor related to a mortgage. It gives you a good view of the cost of borrowing because it includes interest rates, points, mortgage broker fees, and any other charges you can be required to pay. If you compare the APRs of different loans, you will see the total cost of each option. Remember that a loan with a lower interest rate but higher fees can be more expensive in the end than a loan with a higher interest rate but lower fees. That’s why APR is important - always look at it to get a full and clearer picture of the loan’s cost.

Points

If you hear about points for the first time, don’t worry - many people are not aware of these. Mortgage points are some upfront fees you can pay to reduce your interest rate. One point usually costs 1% of your total loan amount and it can make your interest rate lower by about 0.25%. Paying points is a great option if you plan to stay in your home for a long period because it can save you money on interest over the life of the loan. What to do when comparing mortgages? Think if paying points makes sense for your situation. If you can, try to calculate the break-even point - it is the time it takes for the savings from the lower interest rate to cover the cost of the points. If you plan to stay in your home more than the break-even point is, points can be a great option to think about. 

Types of Loan

There are different types of loans, and each type comes with different interest rates and terms. Some of the most popular types are conventional loans, FHA loans, VA loans, and USDA loans. Conventional loans are not insured by the government and usually require a higher credit score. They have competitive interest rates and flexible terms. FHA loans are popular for first-time buyers because they require lower down payments and accept an FHA minimum credit score of 580, making homeownership more accessible to borrowers with various credit profiles.

VA loans are available to veterans and active military members, offer competitive rates, and often don’t require a down payment. Lastly, USDA loans are meant for rural homebuyers - this type offers low interest rates and doesn’t require a down payment if you are an eligible applicant. There are some other types of loans as well, but these are the most convenient and popular ones. 

Lender - Reputation and Customer Service

Last but not least, the lender you choose will make a big difference in the mortgage process. Always search for a lender that has a good reputation and good customer service. Read reviews, ask friends or family for recommendations, and research as much as you can about each lender you’re considering. Good customer service is also very important because you’ll probably work with that lender for many years. Choose a lender who has good communication skills, responds quickly, speaks clearly about terms and conditions, and has the will to help you through this process.

As you can see, choosing a mortgage is not just finding the first option with the lowest interest rate. You need to think about some other factors, such as APR, points, lenders… Remember, you should not rush this decision - take your time to make a decision that will bring you a bright and stress-free future.

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