Smart Borrower Center
Tools to help you borrow better
To many people, the best mortgage is like the ultimate low-maintenance automobile: with the exception of a little monthly upkeep, you shouldn’t have to think about it too much until you’re ready to get a new one. But you still need to be aware of what’s going on under the hood. Today, we’ll let the mechanics worry about your air and oil, and focus on the terms and conditions of your home loan. Here are seven things everyone should know about their mortgage:
1. What is your interest rate?
It’s worth it to keep this one number in the back of your mind, so you can consider refinancing if market rates fall significantly below yours.
2. Is there a prepayment penalty?
If your lender will charge you a penalty for paying off your mortgage early, it will make it that much more expensive to refinance or sell your home before your term is up.
3. What is the term?
If you’re a 30-year, fixed rate type, this isn’t much of an issue. But if you’ve got an adjustable rate mortgage, you need to be aware of when your initial interest rate will reset. If you’ve got a balloon mortgage, you need to know when that big payment comes due.
4. How much could your interest rate change?
If you’ve got an adjustable rate mortgage, be sure to understand how much of a financial hit you could take when your rate resets. The LendingTree Adjustable rate mortgage payment calculator can help you run the numbers.
5. Has your lender paid your property taxes and homeowner’s insurance?
For many mortgage borrowers, their monthly payments include not just the principal and interest on their loan, but money that goes into an escrow account each month for their property taxes and homeowner’s insurance. Your lender is supposed to use this money to pay the tax and insurance bills when they come due, but this doesn’t always happen. Some financial experts recommend that mortgage borrowers send a letter to their lender each year demanding proof of payment.
6. What’s your loan balance?
Unless you’ve got an interest-only loan, your loan balance falls as you make payments over time. It’s good to keep track of what your loan balance is, so you can have some idea of how much equity you have in your home (your home’s market value minus the loan balance), or if you’re “upside down” on your mortgage (your loan balance is more than your home’s market value). You should be able to find your loan balance on your loan’s monthly statements.
7. When can you stop paying mortgage insurance?
If your mortgage down payment was less than 20 percent of your home’s value, you may be paying private mortgage insurance (PMI). But as you make your monthly mortgage payments, your loan balance eventually will drop below 80 percent of your home’s value and you can request that your lender cancel your mortgage insurance.
Published on December 03, 2007