Understanding the differences between loan types is difficult enough, so researching them for comparison purposes is not always at the top of everyone's list. Before you walk into your current bank to fill out a loan application, consider all of your options.
When the loan you are seeking is a mortgage, it's even more important to do your homework because you will be carrying this loan for possibly the next 30 years. That's a long time to be dissatisfied with an awful interest rate.
Ask each lender what the loan's interest rate is. Find out if you will be charged points. These are up-front fees that are paid directly to the lender at your closing.
Every point that is charged equals one full percent of the loan amount. Some lenders allow you to choose between a variety of point combinations and rates for a particular loan product, so be sure to factor in points when comparison shopping.
Find out what the annual percentage rate (APR) on the loan is. This is the rate that you will pay each year for every cost associated with the mortgage.
Ask if there are any pre-payment penalties and discover how the loan is amortized. This means that you want to find out how long it will take for the principal to be paid off. The quicker you can pay off the principal, the more money you save in interest.
When considering adjustable rate mortgages (ARMs), find out when and how often the rate changes. Ask if there is a cap that limits the amount that can be adjusted. Most importantly, find out what your monthly payments would be if the rate hits that cap.
Determine whether you want a 30-year or 15-year mortgage. If you aren't sure if you can afford a shorter term mortgage, find out what your payments would be with a loan calculator.
You can use a loan calculator to determine how big of a house you can afford based on current interest rates. Depending on the loan calculator, you can even figure out monthly payments on a smaller personal loan.
Find out what the lender charges as far as fees are concerned. Aside from points, fees that are generally included include a processing and underwriting fee, appraisal fee, mortgage insurance premium, tax service, credit report order, wire transfers, application fees and many others.
When comparing personal loans, know the difference between a secured and unsecured loan. The repayment terms on an unsecured loan is generally one to four years.
Funds from this type of loan can be used to consolidate debt, pay for educational expenses or emergencies - you name it.
Home refinancing or debt consolidation loans work to lower your existing monthly payments. Whether or not you qualify depends largely on any property value and your credit score.
Factor in all fees regardless of the loan type. This includes interest fees and lender fees, then determine how much money you will actually be spending to repay the loan in its entirety.
A smaller monthly payment may work well in the short term, but you will end up paying much more over the life of the loan.
If you still aren't sure which loan is best for you, talk with a financial adviser.
Photo Credits: Thomas Hawk
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