With the plethora of mortgage lenders at an all-time high, and still expanding at an exponential rate, the borrower in search of a quote can easily obtain estimates with little effort. There are dangers to this reality that consumers must understand to avoid finding themselves stuck with a loan that is not exactly what they anticipated.
Basic Breakdown
In order to ensure accurate comparison from one quote to another, it is essential that the borrower have a basic understanding of the different aspects of a mortgage quote. This knowledge will allow him to filter out those quotes that are not in his best interest, and focus only on those contracts that meet his specific needs.
There are three main pieces to a mortgage quote that a potential borrower should use to evaluate a loan’s potential: monthly payment amount, interest rate, and loan type.
Monthly Payment
For most consumers, the ultimate factor in determining whether or not a loan has potential is the monthly payment. If the payment is within the confines of the allocate budget, then it should be placed aside for further evaluation. If the contract would require a monthly payment that is above what the borrower can handle, then there is no reason to waste time analyzing the other features of the loan.
Interest Rate
A loan’s interest rate should not be the main focus for the borrower’s decision. The interest rate is merely a numerical description of the lender’s profit with that particular contract. In essence, the interest rate is the lender’s fee for loaning such a large amount of money over a period of time.
Loan Type
The loan type is another extremely important factor to consider when comparing mortgage quotes. Since there are countless types of loans available, understanding exactly what he could expect will permit the borrower to make a more informed decision. Fixed mortgage loans are the easiest to understand because the provisions of the contract do not change. The borrower would pay the same amount every month for the entire duration of the contract, usually 15 or 30 years. Adjustable loans, called ARM’s, offer the borrower a fixed payment for a certain number of years, usually between 2 and 7. At the end of that period, the interest rate may adjust at regular intervals, thereby altering the monthly payments.
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