Low Mortgage Rate Is Only A Part Of A Good Loan Deal

2007-03-08 10:33:40

( Financial )



Low mortgage rates have induced homeowners to take out home equity loans. If you own a home you can get good borrowing bargains in a low mortgage-rate loan. The key is knowing how to shop around for a good deal.

There are three aspects to watch for when you shop around: low mortgage rates, repayment options, and closing costs.

Interest rates

You have a choice between fixed or variable interest. If low mortgage rates have prevailed in the market, a fixed-rate loan may be the better choice. Variable-rate loans are good when current rates are high but are expected to decline.

If you take a variable-interest loan, look for a cap that will prevent the rate from exceeding a certain amount.

Repayment options

You have three basic options in loan repayment. One option is to pay a fixed monthly amortization for interest and part of principal until loan is fully paid. Another option allows you to pay only interest during the early stages of the loan, after which you start paying down principal. A third option has you paying substantial amounts to interest and principal.

The third option accelerates loan repayment, allowing you to save on interest payments in the long run. You should ensure that your lender will not charge a pre-payment penalty on your loan.

Closing costs

You may have to pay closing costs for processing fees and necessary charges. Loan points, equivalent to percentage points added to your low mortgage rate, are the most expensive items.

You should note differences in closing costs. It may turn out that a bank with higher interest and lower fees is offering you a better deal than another bank with low mortgage rates and higher fees.

Examine these factors when shopping around. Online mortgages are good sources of home equity financing so check them out. Online mortgages have the added convenience of saving you a lot of time.

But remember that a low mortgage rate is only one factor in the making of a good mortgage package.


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