Mortgage loans are used to buy a home or to borrow money against the value of a home you already own.
What are key features for comparing different mortgages?
- The size of the loan
- The interest rate and any associated points
- The closing costs of the loan, including the lender’s fees
- The Annual Percentage Rate (APR)
- The type of interest rate and whether it can change (fixed or adjustable)
- The loan term, meaning how long you have to repay the loan
- Does the loan have risky features, such as a prepayment penalty, a balloon clause, an interest-only feature, or negative amortization
Focus on a mortgage that is affordable for you, not on how much you qualify for
Lenders tell you how much you are qualified to borrow — that is, how much they are willing to lend you. Online calculators compare your income and debts and come up with similar answers. How much you qualify to borrow is different from how much you can afford to pay on a monthly basis, with the rest of your budget in mind. Lenders do not consider all your family and financial circ*mstances. To know how much you can afford to repay, you need to take a hard look at your family’s income, expenses, and priorities to see what fits comfortably within your budget.
Don’t forget other costs when coming up with your ideal mortgage payment
Costs such as homeowner’s insurance, property taxes, and private mortgage insurance are typically added to your monthly mortgage payment, so be sure to include these costs when calculating how much you can afford. You can get estimates from your local tax assessor, insurance agent and lender. Knowing how much you can comfortably pay each month also helps you estimate a reasonable price range for your new home.
