Compare Mortgages

How do you determine which is the right mortgage for you? The best way is to look at all the features of the mortgage, not just the posted interest rate.The attached worksheet can help you compare two or more mortgages to see which really offers the best terms. The first thing to consider is the type of mortgage: simple ARM, hybrid (for example, a 5/1 term), or fixed rate. Next, note the interest rate, and the date; it’s best to get all your offers on the same day, since rates can change. Then, check the amortization period. Calgary-Mortgage-BrokerFind out which index is used to set the rate for each mortgage, and how much it changes from year to year, as well as the margin added to the index rate to get the actual rate you’ll pay. Is the quoted rate discounted? If so, how long does the discount last? Next, look at the fees. The worksheet shows a number of common closing costs. If one lender is adding more or higher fees, this can raise the overall cost of that mortgage.These fees may be expressed as points – one point is typical. Are you paying any extra points to reduce the rate further? Adding the interest rate, margin, points and extra fees produces the annual percentage rate (APR) that shows the overall long-term cost of the mortgage. The lender is legally obliged to tell you the APR, and it’s a good way to compare mortgages. Guide to Adjustable Rate Mortgages Copyright © 2005 LendingTree LLC. All rights reserved. (However, don’t consider this as the final word: the APR assumes you’ll hold the mortgage for the entire term. If you sell in less than 10 years, the lowest APR may not be the best deal.) Also, find out your initial monthly payment. Next, check if there is a lifetime or a periodic cap on the interest rate, or a payment cap. If so, what is the maximum payment you could face? Will you incur negative amortization if rates rise quickly? And is the mortgage set up so that you could face a large “balloon payment” at the end of the term? Also, does the mortgage allow you to pay off the principal at any time, or to make extra payments to reduce the principal? Can you convert to a fixed rate mortgage if interest rates go up? Check if these privileges carry penalties, either up front or when you complete the transaction. (If possible, try to negotiate for no penalty.) Finally, use the Calculators in the LendingTree Consumer Education Center to see what would happen to your payment if the interest rate were to go up 2 percent at the first adjustment date and if it were to go down 2 percent. This will help you determine whether you could afford the mortgage if circumstances were to change.