The fact that home finance has developed into an immensely diversified and complex business, is a sign of worry as well as joy. There are more ways today for you to borrow money to buy a house than ever before. At the same time, there are also various means by which lenders can take undue advantage of a customer due to the presence of such clauses as hidden costs and penalties levied for prepayment of loans and many more.
Allow your lender to inform you about all the options of home loans and finances available to you, but when you take a final decision, make sure you ask as many questions as you deem necessary. The following questions will help you understand the financial product clearly and make an informed choice:
1) What is the rate of interest?
2) What is the annual percentage rate or APR (APR includes mortgage insurance, points and fees)?
3) How much is the initial rate (in case of ARM is the rate of mortgage adjustable)?
4) What is the maximum rate that can be reached in the following year in case of ARM?
5) How much caps are applicable for lifetime as well as annual payment and what is the rate of interest in case of ARM?
6) Which index is used to act as a reference point for creating rates in case of ARM?
7) How much is the index money that is clubbed with the index (for example in case of ARM it may be 3 over and above the index value)?
8) Is it mandatory to take a life insurance specifically to cover credit?
9) How much would I have to pay in the absence of such insurance policy?
10) Is it possible to waive any of the costs or fees?
11) Do I have to pay a penalty for prepayment of the loan?
12) How much is the penalty for prepayment?
13) Till what time would the penalty clause be in effect?
14) Do you allow the payment of additional principal amounts?
15) Is it possible to lock in the rate of interest for a specific time period in order to safe guard against abrupt increase in interest rates?
16) Are you prepared to give me the details of the lock in period in writing?
17) When do you lock in the rate— do you lock in at the time of application or when the loan is approved?
18) If the interest rate decreases will I get a lower rate too?
19) What are the mandatory inspections and surveys that are to be carried out?
20) Is it mandatory to take title insurance and/or a title search? How much would it cost?
21) Can you give me an approximation of the prepaid sums that I will have to pay at the time of closing?
22) Do you have the provision of availing of discount points to get a lower rate of interest?
23) What are the stamp taxes, local taxes, transfer taxes and state taxes that I will have to pay?
24) Is it required to get a flood determination to ascertain whether the property in question warrants flood insurance?
25) Are there any other costs involved?
26) Do I need to know anything else?
Lenders might not appreciate answering so many questions; however you are entitled to ask all the questions that you want before taking a loan. A one percent higher interest rate would cost you $30,000 more in the long run for a loan of $150,000. Therefore making an informed choice would help you save a lot of money in the long run.
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