The factors that add up to the total amount.
Interest Rates They can vary.
As we've seen, interest rates vary a lot according to the lender, prevailing interest rates, and the type of loan-either fixed or variable rate loan.
For example, an increase from 7 percent to 8 percent on a $150,000 fixed rate loan, with 10 percent down, raises the monthly payment from $900 a month to $990 a month.
Interest Rate Locks What's the Key to Locking In?
This is another selling point to compare between lenders. On fixed rate and some variable rate loans, locking-in your interest rate is a way of insulating yourself from rate hikes while your lender processes your loan application. Locks are available for varying time spans, from 10 days to 120 days. The average length is 30 days, the typical time it takes to process a loan. The lock-in can include just the interest rate or both points and interest rate.
Some lenders offer a "float-down" option that lets the rate drop if it goes below the lock-in rate. Beware of fees, however, that might make this deal less than attractive. Whatever you do, get it in writing. Don't risk any nasty surprises at the settlement table. If there's any dispute about the rate or points, you'll be stuck without a written agreement.
Points They are percentages of your loan.
Lenders charge borrowers "Points," otherwise known as discount points and loan origination fees. This is the big-ticket item on your list of loan costs-one point is equal to one percent of the total loan amount, or $1,500 on a $150,000 loan, for example.
Discount points are the largest fees most lenders charge. Some also apply a one- percent or one-half percent loan origination fee. Be sure to add both before you calculate your total points. Homebuyers have two ways to get around paying points.
First, they can take out a loan with zero points. The catch with no-point loans is you'll pay a higher interest rate. But if you plan to keep your home for only a few years, it makes sense to give a little on the monthly interest rate in order to avoid paying so much cash up-front. Second, buyers frequently ask sellers to contribute a "cash credit" toward closing costs so they don't have to pay so much money up-front.
Mortgage Insurance Premium
It applies if you are paying less than 20% down. Private mortgage insurance applies to you if you're buying a home with less than 20 percent down. Ironically, it doesn't insure you for anything-it simply protects the lender in case you default. It adds about $43 per month for every $100,000 borrowed, or $516 per year.
Title Services A must!
This includes survey, title search and title insurance, to make sure the home is free of liens and encumbrances. Title insurance protects the lender from mistakes in the title search.
Loan Processing Fees What it includes...
These include document handling, preparation and other "fees" associated with processing the loan. Keep an eye on these fees and stay clear of lenders that pad the loan costs with excessive fees.
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