Getting a mortgage is the largest personal financial transaction many of us will make. Here are five tips for avoiding unnecessary headaches:
| Learn which fees you can negotiate. Bargain on some of these costs and save hundreds of dollars. An origination fee—the commission the loan officer makes on the mortgage—can be 2%, 1% or nothing at all. Challenge fees at the initial paperwork stage, not at closing when it may be too late and emotions are running high.
| Talk to at least three banks about your mortgage, and ask friends for referrals. Don’t choose the first loan officer you interview. Simplify the process of getting comparative quotes by asking other institutions to mail, fax or e-mail you a “good faith” estimate and a truth-in-lending statement.
| Consider a conventional, 15- or 30-year fixed-rate mortgage. They serve as forced savings plans, helping you build equity in your home. On the other hand, with an interest-only or adjustable-rate loan, you’ll be paying more interest over a longer period of time. If you’re paying only interest and home prices plummet, you could owe more than your house is worth.
| Know whether your mortgage has a prepayment penalty. Someday you might need to refinance to save on monthly payments, but you won’t be able to afford the prepayment penalty that will allow you to do it.
| Set up a biweekly mortgage payment plan yourself—for free. Don’t pay hundreds of dollars in fees to have a company set one up for you. Just be sure to direct any extra payments toward the principal and not interest. Check with your mortgage lender to see whether it’s allowed.
Source: Adapted from Kickback: Confessions of a Mortgage Salesman, How to Save $1,000s on Your Mortgage by Ted Janusz, Insight Publishing, www.januspresentations.com , 2006.