For many of us, the most important consideration when choosing a mortgage loan is typically the interest rate. A low rate on a mortgage loan can result in significant savings.
However, a low interest rate should not be the only factor when determining the best mortgage loan to meet your needs. We recommend that you review the list of mortgage considerations below, in addition to the interest rate, to help you make a completely informed loan decision.
Annual Percentage Rate (APR)
The APR represents the cost over the life of the loan including interest, mortgage insurance, and other associated fees. Be aware that the APR is separate and not the same as the loan’s interest rate. Some lenders may advertise an APR that seems low but, in fact, assumes a high loan amount. This practice makes their loan offer unrealistically appear more competitive.
Points (also called “discount” or “origination” points)
A loan with a low rate may also have “points” attached. Each point equals approximately 1% of your mortgage loan amount. Points will lower your mortgage loan rate, but are the equivalent of pre-paid interest and raise closing costs.
There are a number of fees associated with most mortgage loans. Many loans contain a combination of fees including loan origination, escrow, recording, appraisals, credit report, and title insurance in addition to prepaid amounts for property taxes and homeowner’s insurance. Other loans offer a single flat fee for these required items.
We highly recommend that you receive a Good Faith Estimate, which lenders are required to provide within three days of applying for your loan. This document should clearly state the fees associated with your loan. Be sure you are aware of these fees when weighing your loan options, as the impact on your total loan cost can be significant.
Interest Rate Lock
Be cautious of lenders who will not lock-in your interest rate, or only offer a short rate-lock period.
Private Mortgage Insurance (PMI)
PMI is insurance paid by the borrower that protects lenders from loss due to loan default or foreclosure. Typically, PMI is required if the loan amount exceeds 80% of the property’s purchase price.
Loan Closing Time
Some lenders may claim to close loans in as little as 10 days, but this is not a realistic turnaround time. Most mortgage loans take 20-45 days to process.
Loan servicing is the administration of payments, insurance, property tax and payoffs following loan funding. Many lenders sell the servicing rights to their loans (the credit union does not), which can disrupt service continuity for the borrower after the loan closes.
Our Commitment To You
Our commitment is to provide highly competitive loan products combined with the highest level of personal service you deserve as a Member-owner. Our loan consultants will outline options to help you make the best loan decision, even if you ultimately opt for another lender. However, we believe our mortgage loan programs offer great value when you consider all factors equally.
To learn more about the mortgage programs offered by the credit union, call 714.258.4000 or 800.462.8328, extension 8236. Our real estate loan consultants will be happy to answer all of your questions.