Should I choose a fixed rate or adjustable rate loan?

This can depend upon several different factors. Fixed rate loans have a stated interest rate that does not change over the life of the loan, whereas the rates on adjustable rate loans are linked to an index and change as the index rate changes.

Many mortgages, such as a 5-Year Fixed (30 Year), start as a fixed rate loan and then convert to an adjustable rate. Adjustable rate loans have more risk due to the possibility that the interest rate could increase.

However, because you are assuming some of the risk the lender will generally reward you with a lower interest rate. These loans are best for borrowers who do not plan on keeping the loan for the full term.

What is the difference between the interest rate and the APR?

The interest rate is the cost to borrow the lender's money. The APR represents the total cost of the mortgage over the life of the loan, including closing costs and lender points.

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When does it make sense to pay points?

Points are a one-time fee that a borrower pays to lower the interest rate. Points are defined as a percentage of your loan amount, with one point being equal to one percent of your loan. For example, if you borrow $200,000, one point would be equal to $2,000. Paying one point will generally reduce your interest rate by approximately .25%.

An alternative to paying points is to receive a "credit" from the lender in exchange for a higher interest rate. Whereas points are added to your closing costs, a credit is used to reduce your closing costs. Once again, you can receive a credit of approximately one point by raising your interest rate .25%.

Whether you choose to pay points or receive a credit, this amount will be applied to your closing costs when your loan funds.

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Should I consider an Interest-Only loan?

Interest-Only loans are a good means of either increasing your home purchasing power or maximizing your flexibility to control cash flow.

You can save significant amounts of cash for investment, savings, or other expenditures during the first ten years of your loan. This is also a solid strategy to maximize tax deductibility, with more funds available for paying down higher cost, nondeductible consumer debt.

With these loans, the minimum payment required covers interest only — you decide how much or how little of the principal to repay each month. These loans should not be confused with negative amortization loans. With Interest-Only, the principal balance NEVER increases.

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Can I apply for a purchase loan before I find a property?

What is pre-paid interest?

This amount represents the interest that accrues between the day your loan closes and the last day of that month. It is added to your closing costs. After this one-time prepayment, your interest will be included in your regular monthly payments.

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