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Mortgage Information: The Basics

Your Mortgage is likely to be your single largest financial transaction.

For many Americans, a mortgage on a house is the single largest financial transaction they will ever complete. It is worth every minute you spend finding the best terms and rates for your - you could save (literally) tens of thousands of dollars. This site will make sure you know the basic things you need to know to save money and avoid problems with your next mortgage.

My single most important piece of advice to anyone getting a mortgage is to use a lawyer to review all the documents before you sign them.

This includes the offer to buy, purchase and sale contracts and all mortgage related documents. The paperwork is daunting, but lawyers know what it means and they can inform and explain it to you in English.
This should only cost you a few hundred dollars - and it could save you from big problems later.

Mortgage Information: They are a different type of loan

Generally, mortgage loans are made at rates lower than any other type of loan because they are “secured” by the property. If the borrower defaults on a mortgage the lender may “foreclose” and force sale of the property to get back the money they are owed. The lender’s risk of losing capital is, therefore, relatively low; much lower than it would be on an unsecured loan like those on credit cards. And lenders respond to this lower risk with lower interest rates.

Every lender has their own method of determining risk, and the result of that determination will have a major impact on the rate they offer you. People often lose money by failing to look at enough comparative offers.

 

I have a friend who works in the so-called “sub prime” mortgage market. That is, he works for a company that makes loans, at higher than normal rates, to people whose credit history or situation makes them less desirable borrowers. Years ago, many of these people would not have been able to get a mortgage.

My friend has been very surprised to see how many people with good credit ratings (everyone has a credit score -- usually on a range from 250 to 800) come to his company for a mortgage when they could easily get lower rates from a wide variety of other lenders, saving them thousands of dollars.

For example, here is an abbreviated chart of the difference in monthly payments on a 30-year, $100,000 mortgage as interest rate changes:

Interest Rate Monthly Payment
6.5% $632
6.25% $615
6% $599
5.75% $583
5.5% $567

The one-point difference between 6.5% and 5.5% would save you more than $60 a month, $730 a year, and more than $3,500 over five years for every $100,000 you borrow. If your mortgage is $200,000, double those numbers.

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