Deciding on a Mortgage

Once you've been pre-approved for a mortgage, you need to decide which type of mortgage best suits your needs. This decisiion is usually based on the interest rate, associated costs of the loan and how much time you're given to pay back the lender.

What are Mortgage Points?

Points are a percentage of the loan amount paid at closing that affect your interest rate. For instance, on a $200,000 loan, 1 point = 1% or $2,000. How it works is that if you pay points, you buy down the rate. Alternatively, in exchange for a higher rate, the lender pays points to offset your closing costs. These are considered negative points. Negative points may be a wise option if you have limited funds to use at closing. Points are also disclosed as discount points. Whatever the name, they are itemized on your Good Faith Estimate and are typically paid at closing.

What is a Good Faith Estimate?

Required by Federal Law, the Good Faith Estimate (GFE) is a written list of the estimated closing costs associated
with your mortgage transaction, including the lender's charges along with the local closing agent's charges and fees. It also includes estimated amounts for real estate property taxes and homeowner's insurance. Once you've been pre-approved by Coldwell Banker Home Loans, you can access your GFE online from your computer.

What is a Truth-in-Lending statement?

Required by Federal Law, the Truth-in Lending statement provides detailed information about the total charges that you will incur over the life of the loan. It includes the Annual Percentage Rate (APR), the amount of interest you'll pay, the amount financed and schedule of payments, the total of your payments, and late payment charges.

Why is the Annual Percentage Rate (APR) different from the interest rate?

The annual percentage rate is intended to reflect the total cost of your mortgage loan. To calculate the APR, lenders consider the interest rate on your mortgage loan, the term of the loan, and other loan fees such as closing costs, points, etc. Your monthly payment is calculated based on the mortgage note rate, not the APR. The APR will be higher than your interest rate, especially if you are paying any points. To be used as a valid evaluation tool the APR must be loan specific. The actual APR will show up on the Truth-in-Lending statement that you will see once you have submitted your information and reserved your funds. When comparing loan programs based on APR make sure you ask each lender their criteria for determining the APR.

Types of Mortgage Loans