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Mortgages
ABC's - Mortgages Are Not Created Equal
The
term of the mortgage -- This describes the amount of time it will
take you to pay off the loan's principal and interest. Although
short-term mortgages typically offer lower interest rates than
long-term mortgages, they usually involve higher monthly payments.
On the other hand, they can result in significantly reduced interest
costs over time.
The
variability of the interest rate -- There are two basic types
of mortgages: those with "fixed" (i.e., unchanging)
interest rates and those with variable rates, which can change
after a predetermined amount of time has passed, such as one year
or five years. While an adjustable-rate mortgage (ARM) usually
offers a lower introductory rate than a fixed-rate mortgage with
a comparable term, the ARM's rate could jump in the future if
interest rates rise. If you plan to stay in your home for a long
time, it may make sense to opt for the predictability and security
of a fixed rate, whereas an ARM might make sense if you plan to
sell before its rate is allowed to go up. Also keep in mind that
interest rates hovered near historical lows in recent years and
are more likely to increase than decrease over time.
Points
-- Points (also known as "origination fees" or "discount
fees") are fees that you pay to a lender or broker when you
close the deal. While a "no-cost" or "zero points"
mortgage does not carry this up-front cost, it could prove to
be more expensive if the lender charges a higher interest rate
instead. So you'll need to determine whether the savings from
a lower rate justify the added costs of paying points. (One point
is equal to one percent of the loan's value.)
How
Much Would You Save?
A homeowner with a 30-year, $200,000 mortgage charging 8% interest
would pay $1,468 each month. The table below illustrates the potential
monthly savings and the various break-even periods that would
result from refinancing at different rates.
Rate After Refinancing New Monthly Payment Monthly Savings Months
to Break Even*
7.5% $1,398 $70 29
7.0% $1,331 $137 15
6.5% $1,264 $204 10
6.0% $1,199 $269 8
5.5% $1,136 $332 7
5.0% $1,074 $394 6
*Assumes
$2,000 closing costs. Rounded up to the next highest month.
A Closer Look at Mortgage Fees
Using data collected during 2003, researchers at Bankrate.com
determined the average fees charged to consumers who borrow money
to buy a home. Based on a loan of $180,000, the fees broke down
as follows:
Average Lender/Broker Fees
Administration fee: $336
Application fee: $205
Commitment fee: $498
Document preparation: $194
Funding fee: $228
Mortgage broker fee: $839
Processing: $320
Tax service: $73
Underwriting: $269
Wire transfer: $31
Third-Party Fees
Appraisal: $327
Attorney or settlement fees: $445
Credit report: $29
Flood certification: $17
Pest & other inspection: $68
Postage/courier: $45
Survey: $174
Title insurance: $605
Title work: $200
Government Fees
Recording fee: $76
Various taxes: $1,339
reprinted from Yahoo.com
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