How many consumers know what does Annual percentage (APR) means?
It is funny when people search for a mortgage, whether it is for a purchase money mortgage, refinance, second mortgage, personal or installment loan, auto loan, etc., they are focused on the rate only.
All lenders disclose interest rate, monthly payment, terms, late charges, penalties, etc., but by law, they also have to disclose the true cost of the mortgage or the loan by stating the actual cost of the mortgage in the form of the APR.
Next time you borrow money, read the disclosures carefully and you will see somewhere it will state what the APR of your mortgage or loans is.
The Annual Percentage Rate tells you the true cost of borrowing.
So, shopping for a low-rate mortgage is good but that is not all that you should be shopping for. Here are the few things that you should consider when taking out a mortgage and then figure out the bottom-line cost and terms.
RATE: You start with the rate.
COST: Look for the cost of borrowing the money. Included in APR are the lender fee, broker fee, legal cost, appraisal fee, and other miscellaneous fees also known as junk fees.
APR: Now see which mortgage broker or the lender is offering you not only the lowest rate but also the lowest APR.
PENALTIES: Find out if there is a prepayment penalty. Depending on what kind of mortgage or loan you are taking, some lenders may charge no prepayment penalty if you pay-off the mortgage before maturity. No prepayment penalty can save you thousands.
LATE CHARGES: Don’t ignore the late charges, especially if you are borrowing a private mortgage. I have seen steep and unethical late charges and other terms like performance fee. Stay away from such private mortgages.
RENEWAL: Alt-A and Private mortgages are mostly for one year term. If you are taking out a private mortgage, find out if there is a renewal option. If there is one, find out the conditions and the cost of the renewal. For Private Mortgages, Mortgage Investment Corporation (MIC) is the best source but you will still have to go through your mortgage broker.
TRANSFER/SWITCH: if you are taking out a mortgage, you can also see if the bank or the lender is offering the Transfer and Switch features in the mortgage terms. That means if you sell and buy a new home, you are allowed to move your mortgage to your new home. A clear advantage to you.
Now you know what to look for in a mortgage.
Jeet Singh is a writer and President of Benevolent Bancorp.
