Cheap Mortgage Rate

Must-Ask Questions When You Get Your Mortgage

Whether you're buying a house or refinancing, there is more to a mortgage than just the rate. Here are eight essential questions to ask while mortgage shopping. Some questions you’ll need to ask yourself, while others can only be answered by mortgage professionals and insurers.

How long do I plan to stay in the house?

This question is often challenging to answer, but it's crucial because many of your decisions hinge on it. The duration you plan to stay affects whether you should pay points to lower your rate, opt for a fixed-rate or adjustable-rate loan, or accept a prepayment penalty. If considering refinancing, this question helps determine if refinancing is worthwhile.

If you’re unsure how long you’ll stay, note that the median duration homeowners remain in one residence is 8.2 years, according to census data. Half of homeowners move within 8.2 years, while the other half stay longer. Assess whether you feel “average” and use this as a guideline.

How much are the costs of getting the loan?

Upon applying for a loan, you’ll receive a federally mandated document called the 'Good Faith Estimate' (GFE) of closing costs. This document estimates how much the lender will charge for origination and discount fees, appraisal, credit report, document preparation, title insurance, pest inspection, and various other costs. Compare GFEs carefully, particularly the line that reads "Estimated cash at closing," which is an educated guess of your out-of-pocket expenses to secure the loan.

How long will it take to break even?

For homebuyers, calculate how long it will take to break even if you pay discount points for a lower rate. For those refinancing, determine how long it will take to recoup closing costs from your monthly savings. Divide the upfront cost (discount points if buying, all closing costs if refinancing) by the monthly savings to find the break-even point. If it will take five years to break even but you expect to stay in the house for only four more years, it’s probably not worth it.

What makes me feel comfortable?

Mortgage decisions often go beyond objective, dollars-and-cents calculations. Psychological comfort plays a significant role. For example, some clients insist on paying zero discount points, while others prefer to pay more points for the lowest possible interest rate, even if it takes several years to break even.

People’s comfort levels vary widely. Some seniors prefer 30-year mortgages for peace of mind, while others want to refinance once and secure a rock-bottom rate by paying many points. Some homeowners prioritize the lowest possible payments, opting for an interest-only, five-year ARM. Understand what makes you feel comfortable and choose accordingly.

Conclusion

Carefully considering these questions can help you make informed decisions when securing a mortgage. By understanding your needs and the implications of various mortgage options, you can find a mortgage that best fits your financial situation and personal comfort level.