Wow, alot of questions... Here's a stab at some:
1) Types of Rates
Fixed: Will not change as long as you make your payments on time (some
loans have clauses stating that if you have a certain number of late
payments or miss a payment then the interest rate will rise)
Variable: Will rise/fall in correlation to the prime rate. The prime
rate is clearly going to rise over the next couple years, my guess is
that it will rise 3.5% within 2 years (turning a current 5% variable
loan into an 8.5% variable loan)
ARM: Usually start with a low rate then the rate is scheduled to jump
up after several years (not a good way to go unless you fully
understand what will happen and how you can avoid paying alot of extra
money)
The fees and charges are simply what the broker/company want to charge
you. Sometimes you can avoid them altogether.
Points are sometimes prepayed interest (meaning that they are tax
deductible if they are... ask the broker if they are "prepayed
interest"). Typical loans vary from 0 to 3 points which equal 0% to
3% of the loan value. Of course fewer points are better, but ideally
if you pay points then you can get a lower interest rate.
2) Payment dates are sometimes optional depending on the company. A
good company will be completely flexible at the beginning and allow
you to choose monthly, 2ce monthly, or biweekly. I suggest that if
you have the option that you take the one that matches your income (if
you get paid monthly then choose monthly), that way your finances are
easier to work out. The benefit of making payments more often is that
the you will save a slight amount on interest (since part or half of
your payment will be early every month)... usually resulting in a
slightly shorter term on the loan (maybe 29 years rather than 30
years).
3)
-Watch out for a pushy mortgage broker. Don't let anyone rush you on
this huge decision. Insist that you want to take the paperwork home
with you and you want time to think about your decision. If they
still try to make you sign your life away then walk away from the
deal.
-As stated before, watch out for the ARM mortgage unless you fully understand it.
-Watch for prepayment penalties. Some loans will charge you
significant fees for paying off your mortgage early (I've seen one
that cost the borrower $20,000 when he paid it off early). This is
important if you happen to move before the prepayment penalty date
expires as you are likely to pay off the mortgage when you sell the
house.
5)
-Decrease your credit card debt to less than 10% of your credit limits
on every credit card.
-Decrease your debt in general (a small amount of debt looks good, but
anything beyond 10% of your annual income starts to look bad).
-As daytrader suggested, check your credit reports for errors.
6)
An interest only loan will have a slightly lower monthly payment, but
the size of your debt will never decrease. I suggest avoiding this
type of loan unless you fully understand it and have a well drawn out
plan to get out of debt in the future.
Should your house not gain much value (or lose value as they seldome
but sometimes do) while you live there and you have only paid interest
on the loan then you may lose money when you go to sell the house
(having to pay for a broker and other such fees).
7)
This is an interesting question. I hate this question actually, as it
is the type of question that a mortgage broker or a real estate agent
wants you to ask ... "how much can I afford". The real question
should be "how much do I really want to pay".
Look at your budget (if you don't have 1 drawn out then make one) and
then take out what you're currently paying for housing. See how much
money per month you can afford. If that amount is $1,000 per month,
then try to imagine a $1,000 per month house verses a $900 per month
house... is that difference really worth $100 per month ($1200 per
year) to you? What else would you spend that money on? If nothing
else you could invest that money and retire several years earlier...
just a thought.
I hope my ramblings were a bit helpful. Best of luck to you buying a
house, it's a huge step and it's great to see you putting time and
effort into understanding as much as you can about what you're getting
into. |
