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If you purchased your home with an option adjustable rate mortgage because you needed the lowest payment possible you should be very concerned about all the trouble brewing in the mortgage industry. When your option ARM begins resetting coupled with the declining values of homes across the country it could become extremely difficult for you to keep up with rising mortgage payments. Here are several tips to help you decide if refinancing your option adjustable rate mortgage is right for you.

Payment Option Adjustable Rate Mortgages

Pay option mortgage loans are relatively new and offer a great deal of flexibility for the savvy homeowner or Real Estate investor. The problem is that many people who purchased homes with these loans don’t understand how they work and blindly go on paying the minimum amount due each month until the lender recasts their loan and find out that foreclosure is a short 120 days away.

If you’re reading this and are unfamiliar with payment option mortgages, they are a very flexible mortgage with several different payment options. Homeowners with these loans can make payments on any given month based on the following options:

15 year or 30 year amortization
Interest Only
Optional Minimum Payment

The first option is a fully-amortized payment meaning that portion is applied to your loan balance after the interest is paid. If you choose to make the interest only payment you will only pay the finance charges due each month without paying down your loan balance. The “optional minimum payment” is what gets homeowners in trouble. This payment does not cover all of the interest due in a month. The unpaid portion is added to the loan balance every month. This means that your mortgage is actually growing over time and when it reaches a certain threshold, usually 125% of your loan amount, the lender will “recast” your loan.

Recasting means that the mortgage is converted to a standard adjustable rate mortgage amortized for the time remaining in your loan contract. For many homeowners this results in payment shock that they are unable to recover from and ultimately lose their homes.

Are You Running Out of Options?

If you are a homeowner who has been making the minimum payment month in and month out you should refinance your loan immediately. Your option mortgage is a ticking time bomb that could cost your home. The payment option mortgage problem is not limited to homeowners with poor credit; industry analysts estimate that there are 580 billion dollars in outstanding option loans from 2005 and 2006 alone. Analysts expect many of these loans to end in foreclosure due to declining home values.

Protect Your Home

How can you protect yourself from mortgage payment shock with your option mortgage? Use a mortgage calculator to predict your monthly payment when your loan resets. Read your mortgage contract and find out what the lender’s margin is when calculating your future payment amounts. If you find that you will not be able to afford the payments after the reset consider refinancing with a hybrid adjustable rate mortgage to keep your payments low and lock in your mortgage rate for the time being.

You can learn more about your mortgage refinancing options; including costly pitfalls to avoid when dealing with mortgage brokers with a free mortgage DVD. Request yours today.

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If you’re in the process of refinancing your mortgage you might be losing sleep over your rate lock. Last week mortgage rates rose from 5.6% to 5.8% almost overnight. If you didn’t lock your rate in writing you’re looking at higher mortgage rates this week. Here are the basics you need to know about locking in your mortgage rate when refinancing.

Locking in Your Mortgage Rate

The purpose of a mortgage rate lock is to hold the interest rate you agreed long enough to give you time for closing. You must have written confirmation of your rate lock or you do not have an agreement with the lender. Even when you get your mortgage rate locked in writing, rate lock agreements guarantee very little and are usually structured so that the lender can change the agreement at will. Despite this lack of confidence in your lenders written word it is still better to lock in writing than not at all.

What Documents Lock in Your Mortgage Rate?

Once you notify your broker that you want to lock a specific mortgage rate you should receive a written rate lock confirmation from the lender. This document will be faxed, emailed, or created online for your broker confirming the lock. Your rate lock outlines the terms of your mortgage including rate, points, Yield Spread Premium and the expiration date of the lock.

Make sure that this document comes from the lender, not your mortgage broker. Your broker can never guarantee a rate that isn’t locked by the wholesale lender. A common bait and switch tactic used by many brokers is providing bogus or doctored rate lock confirmation and then switching you to a higher priced loan offer when the deal falls through. When this happens a dishonest mortgage broker will often blame you and say the rate lock expired because of something you did.

Your mortgage broker may also give you a doctored rate lock confirmation because their markup of your mortgage rate will be clearly displayed on this document. This commission based markup of your mortgage rate is not only completely unnecessary but is completely dishonest in most cases. You can learn more about protecting yourself from shady mortgage brokers with a free mortgage refinancing DVD.

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Mortgage loans can be confusing and intimidating for many homeowners. Terminology like APR is not only confusing, but in the case of Annual Percentage Rate is misleading. Here are the basics you need to know about Annual Percentage Rate (APR) and your mortgage rate when comparison shopping loan offers.

Annual Percentage Rate (APR)

What is the APR and can you rely on it when shopping for a mortgage loan? Banks and mortgage lenders are required to publish the Annual Percentage Rate for their loan offers. The APR is supposed to express the total cost of the loan expressed as an annual percentage rate. This sounds like a good idea; however, Truth in Lending laws do not stipulate how mortgage lenders and banks should calculate the APR or even what fees and costs should go into the calculation.

Because there is no standard for banks and lenders to use when calculating the APR it cannot be relied on when comparing offers from one lender to the next. In order to comparison shop effectively you need to compare mortgages of the same term length and type of mortgage rate. It is also a good idea to compare rate quotes issued on the same morning or afternoon due to the volatility of mortgage interest rate.

How to Comparison Shop for a Mortgage

Because the Annual Percentage Rate is not reliable, how can you compare loan offers effectively? Comparison shopping for a mortgage can be a very difficult task because you will not have an accurate picture of loan costs until you receive the HUD-1 statement prior to closing. You can use the Good Faith Estimate to compare loan offers; however, keep in mind that this document is only as good as the person preparing it is honest.

Another problem with the Good Faith Estimate is that many mortgage brokers low ball third party settlement charges to make their offers seem more attractive. They may also leave commission based markup of your mortgage interest rate off the Good Faith Estimate completely. This is why you must reconcile your Good Faith Estimate with the HUD-1 statement before closing on your new mortgage.

You can learn more about comparison shopping for a new mortgage while avoiding expensive pitfalls like the Annual Percentage Rate with a free mortgage DVD. Order yours today, the DVD is yours free with no obligation.

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The mortgage quotes you receive when shopping for a new lender do not give you the actual interest rate you qualify when refinancing. The rate quotes you get are “retail” mortgage quotes that include unnecessary commission based markup. Here are several tips to help you understand how mortgage rates are quoted so you can refinance with the actual mortgage rate you qualify.

Mortgage Yield Spread Premium

The commission based markup of your mortgage rate is called Yield Spread Premium and you can avoid paying it by understanding mortgage quotes and learning how to read lender rate sheets. In order to understand how commission based markup works it is helpful to understand how mortgage brokers and other loan originators are compensated.

Mortgage Broker Compensation

Mortgage brokers are compensated for their work from two sources. You will be required to pay the broker a fee for their part in arranging your loan. This fee is commonly called an origination fee or origination points and should not be more than one percent of the amount you are refinancing. The second method is the so called “lender paid compensation,” or Yield Spread Premium. This fee is paid by the lender as an incentive for overcharging you. For every .25 percent your broker inflates your mortgage rate they receive one percent of your loan amount in lender paid compensation.

Why do lenders reward mortgage brokers for overcharging you? The majority of profit for a lender comes from selling mortgage loans to investors on the secondary market. Mortgage loans with above market interest rates bring premium profits for the lenders and this is why your broker is rewarded for overcharging you.

How Mortgage Rates Are Quoted

Every wholesale lender publishes their rate sheets by fax or online each day. Mortgage brokers use these rate sheets to quote you a rate; however, the quote you get is not based on your credit or financial details as you might expect. Your mortgage quote is based on how much the broker thinks you’re willing to pay in addition to the mortgage rate you qualified. Just like a used car salesman your mortgage broker quotes you an interest rate with their commission check in mind.

How to Avoid Yield Spread Premium

Most homeowners unknowingly agree to retail mortgage rates without knowing their broker marked up the interest rate. This amounts to paying thousands of dollars unnecessarily over the lifetime of the loan. Yield Spread Premium is a completely unnecessary fee because you are already paying a perfectly reasonable origination fee for your mortgage broker’s services. Homeowners who learn to recognize this markup can find honest mortgage brokers and negotiate to avoid paying it. This is much easier than it sounds and you can save yourself thousands of dollars refinancing with a wholesale mortgage rate.

How to Recognize Yield Spread Premium

Many mortgage brokers become defensive when asked about Yield Spread Premium. If your broker gets angry or tells you not to worry about the fee because it’s being paid by the lender you are probably dealing with a dishonest person. Tell your prospective mortgage brokers that you understand how Yield Spread Premium works and will pay a reasonable fee for their services but will not accept loan offers with this “lender paid” compensation.

Ask your mortgage broker to show you the rate sheet from the wholesale lender on the day you lock in your rate. Make sure the rate sheet comes from the lender and is not something typed up on the mortgage broker’s letterhead. If the broker refuses to show you the rate sheet or makes excuses this person is not being honest with you; find another mortgage broker that will be.

You can learn more about your mortgage refinancing options, including costly pitfalls to avoid with a free mortgage DVD.

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If you are in the process of purchasing your home or refinancing your existing mortgage you will most likely encounter the term “points.” What are points and is it ever in your best interest to fork over additional cash at closing? Here are the basics you need to understand about mortgage points and whether or not it’s in your best interest to pay them.

Mortgage Points Come In Two Flavors

There are two varieties of mortgage points. The first are the origination points you pay for your loan originators part in arranging your loan. Your loan originator could be a mortgage company, internet mortgage site, your bank, or a mortgage broker. Origination fees vary widely and are one of the reasons many homeowners overpay for their mortgage loans. How much is a reasonable amount to pay for your mortgage origination points? A reasonable fee to pay is one percent of your loan amount and not a penny more.

One Mortgage Point = One Percent of Your Loan Amount

The second type of mortgage points you will encounter are the “discount” points you pay in exchange for something from the lender, usually a lower mortgage rate. Discount points can be used for other reasons when negotiating; for example you could negotiate to pay discount points in exchange for a certain rate and not having a prepayment penalty included in your loan contract. Don’t underestimate your ability to negotiate with mortgage lenders, especially with the current economy. Mortgage lenders are hurting and are desperate to close loans. You can leverage this to your advantage when negotiating for loan terms.

Should You Pay Discount Points?

The decision to pay discount points depends on your financial situation and what you have to gain by paying this fee. One of the main factors to consider is how long it will take you to recoup the expense from paying discount points with the lower mortgage payment. You can easily calculate how long this will take by dividing the amount you’ll pay in discount points by how much lower your mortgage payment will be because of the fee. This will tell you the number of months it will take you to recoup paying discount fees before you realize any savings. If you plan on selling your house within the next five years or in the amount of time you calculated above, it doesn’t make sense to pay discount points.

There Are Tax Advantages When Paying Discount Points

Paying discount points will earn you a tax deduction in most cases. According to the IRS the discount points you pay are prepaid mortgage interest. There are stipulations and you may or may not be able to deduct the full amount in one year according to IRS rules; however, this prepaid interest can certainly reduce your tax liability if you itemize deductions on your tax returns.

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If you are a homeowner paying on an Adjustable Rate Mortgage, refinancing could help you avoid a financial nightmare. Many homeowners don’t know when their Adjustable Rate Mortgages are scheduled to reset and experience payment shock when their monthly payment goes up by several hundred dollars. Here are several tips to help you manage your Adjustable Rate Mortgage and decide if refinancing is right for you.

Many homeowners use Adjustable Rate Mortgages to purchase their homes because these loans are easier to qualify for and have lower payments, at least in the beginning. These loans frequently come with ultra-low “teaser” interest rates; however, at the end of the introductory period the loan switches to the contract mortgage rate and the payments go up significantly. Homeowners who don’t understand how their contracted mortgage rate works can experience payment shock when their lender starts adjusting the loan.

What is Mortgage Payment Shock?

Imagine waking up one day to a statement from your lender showing that your Adjustable Rate Mortgage has reset and the new monthly payment will be $400 more than you’re currently paying. For many homeowners living paycheck to paycheck this would be a disaster resulting in the eventual loss of the home. Payment shock occurs for a number of reasons; some homeowners don’t understand how their Adjustable Rate Mortgages work or even what their contract interest is.

Benefits of Refinancing Your Adjustable Rate Mortgage

There are a number of benefits from refinancing in addition to locking in your monthly payment amount. If you decide to stick with an Adjustable Rate Mortgage, refinancing could get you a better margin if your credit score has improved. Margin is the amount of markup that’s added your mortgage rate every adjustment cycle; the amount you’ll pay is partially based on your credit score. If you’ve improved your credit rating you could get a lower margin and pay less interest.

Of course the main benefit or refinancing your Adjustable Rate Mortgage with a fixed rate mortgage is having a stable payment amount. When interest rates are on the rise for whatever reason you can expect your mortgage payments to follow. Fixed rate mortgage loans protect you from economic uncertainty and rising mortgage interest rates. If you don’t want to refinance with a fixed rate mortgage you can improve your stability by refinancing with an Adjustable Rate Mortgage with better caps. Caps are safety features that limit how much your payment amount and mortgage rate can rise during any one adjustment and over the lifetime of your mortgage.

Refinancing Can Help You Build Ownership Faster

Refinancing your mortgage with a new loan with a shorter term length allows you to build equity in your home at a much faster rate, meaning that you will pay your mortgage down faster and pay less to your lender in finance payments. The disadvantage of a shorter term length is that your monthly payment will be much higher; however, if your budget can support his payment you can save yourself thousands of dollars in the long run. There are other circumstances where refinancing can raise your payment amount. Borrowing against the equity in your home for instance results in qualifying for a slightly higher mortgage rate and a higher monthly payment. The money you get back can be used for any reason; many homeowners use equity in their homes to consolidate higher interest debts such as credit cards.

Is Mortgage Refinancing Right For You?

There are a number of factors to consider when deciding if mortgage refinancing is right for you depending on your objective for the new loan. Many financial advisors and websites will tell you not to refinance unless your new mortgage rate is at least two percent lower than you’re already paying; however, this so-called “rule of thumb” is bad advance.

Rather than basing your decision to refinance on an arbitrary mortgage percentage rate, it makes more sense to base your decision on how long it takes you to recoup your expenses from refinancing and realize a savings. Here’s why…whenever you take out a mortgage loan you will be required to pay a number of fees and closing costs. If your objective for refinancing is to save money with a lower payment amount you will not realize any savings until you have recouped these expenses.

You can easily calculate how long it will take you to recoup your expenses by dividing the amount of your out of pocket expenses by the amount you will be saving each month on your mortgage payment. This will tell you the number of months you have to realize a savings from the new mortgage. This only works if you are considering refinancing to lower your monthly payment amount. Homeowners refinancing with longer term lengths or borrowing against their homes may never recoup the expenses of refinancing their mortgage loans.

Another factor to consider is the amount of time you plan on keeping your home. If you sell your home before recouping your expenses you will lose money by refinancing. You should not plan on moving prior to the reaching this break-even point for your loan.

Beware Mortgage Broker Fees

Once you’ve decided to go ahead with refinancing your mortgage there are a number of potential pitfalls you’ll need to avoid. These problems include paying unnecessary closing costs, Broker fees and commission based markup of your mortgage interest rate. If you’re not careful a greedy mortgage broker can wipe out any potential savings you stand to realize from refinancing the loan. You can learn more about refinancing your Adjustable Rate Mortgage with a wholesale rate and avoiding unnecessary fees with a free mortgage DVD.

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Many homeowners wonder if taking out a new mortgage during the holidays is a good idea. If you’re considering refinancing this holiday season, there are a number of very good opportunities available for savvy homeowners. Here are several tips to help you make an informed decision if refinancing this holiday season is right for you.

Mortgage Rates This Holiday Season

Despite the credit crunch in the United States wholesale mortgage rates are currently hovering at 5.875% for a 30 year, fixed rate mortgage. This is an excellent opportunity to refinance if you are still paying on a higher rate mortgage loan. Keep in mind that this is a wholesale mortgage rate and the rate quoted by your mortgage broker will include Yield Spread Premium. Your goal when taking out a mortgage is to avoid paying this unnecessary and controversial markup.

Reasons For Refinancing Your Mortgage

The most common reason for refinancing during the holidays is to borrow cash against the equity in your home. While borrowing cash for the holidays might not be the best use of your home’s equity, it is after all your equity. You can use the cash you get back at closing for any reason that you see fit. Other reasons for refinancing include consolidating your first and second mortgages to get one monthly payment and consolidating your higher interest credit card debt.

Refinancing With a Wholesale Mortgage Rate

Homeowners who avoid the unnecessary retail markup of their mortgage rate can save thousands of dollars in finance charges. Avoiding this markup known as Yield Spread Premium is easier than you think; the hardest part is learning how to recognize it in your loan documents. The Annual Percentage Rate provided by the lender tells you nothing about Yield Spread Premium and many brokers conveniently leave this fee off the Good Faith Estimate.

How can you find out if your loan includes Yield Spread Premium? Ask your mortgage broker to see the rate sheet from the wholesale lender behind your loan. Don’t accept a rate sheet printed on your mortgage broker’s company letterhead, it needs to come from the wholesale lender. Tell your mortgage broker that you understand Yield Spread Premium and will not consider loan offers that include lender paid fees.

Beware Garbage Fees

In addition to avoiding Yield Spread Premium when refinancing there are a number of garbage fees you need to be aware of. Carefully review your Good Faith Estimate for any fee that resembles an application fee, rate lock fee, broker courier fee, or loan processing fee. These are garbage fees added by your mortgage broker that have absolutely nothing to do with lender approving your loan. If you find fees like this on your Good Faith Estimate you should call your mortgage broker out and negotiate to have them removed or pay a lesser amount.

Reconciling Your Good Faith Estimate

The Good Faith Estimate you receive is one of the least understood mortgage documents. When your mortgage company or broker quotes you an interest rate they typically provide you a copy of the Good Faith Estimate. This document estimates your closing costs and fees for obtaining the loan. The Good Faith Estimate you receive is only as good to you as the person preparing it is honest. In many cases mortgage brokers fabricate these documents so you’ll commit to the loan. Once this happens you can be sure that bait and switch will get you more expensive loan.

You can avoid this by reconciling your Good Faith Estimate with the HUD-1 statement before signing the loan contract. While the Good Faith Estimate is supposed to approximate your costs, the HUD-1 is the final list of what these fees actually are. Never sign your loan contract without reconciling your Good Faith Estimate against the HUD-1. If you find any discrepancies whatsoever you should have a heart-to-heart discussion with your mortgage broker before you sign anything.

You can learn more about refinancing your mortgage without paying garbage fees and retail markup of your mortgage rate by registering for a free Mortgage DVD.

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Many homeowners have never heard of Yield Spread Premium and do not understand why their mortgage rate is marked up. Yield Spread Premium sounds complicated; however, once you understand why it’s there, you can avoid paying this unnecessary markup. Cutting the fat from your mortgage rate by as little as a quarter point can lower your monthly payment by hundreds of dollars in many cases. Here are the basics you need to understand about Yield Spread Premium and mortgage interest rates.

Why Yield Spread Premium?

From the lender’s point of view this markup is all about return on investment. Wholesale lenders make the majority of their profits selling mortgage loans to investors on the secondary market. Mortgages with above market interest rates bring these lenders premium profits; this is why lenders incentivize overcharging homeowners with retail mortgage rates.

There’s a lot that goes on behind the scenes when your mortgage broker quotes you an interest rate. Once your broker understands your financial situation they’re sizing you up much like a used car salesman does when you walk onto the lot. Your mortgage broker knows the wholesale mortgage rate you qualify from the wholesale lender; however, the broker wants to up sell you on a higher mortgage rate because of this incentive from the wholesale lender. Here’s an example to illustrate how Yield Spread Premium works.

Suppose you are refinancing your 1st and 2nd mortgage loan for a total of $250,000. You wanted to consolidate these two mortgages with a lower interest rate and one payment. The broker tells you that you qualify for a 6.75% fixed rate loan and charges you 1.5 points for the origination fee. One point in this example is $2,500 as a point equals one percent of your loan amount. What your mortgage broker isn’t telling you is that you actually qualified for a 6.0% mortgage rate and they’ve marked it up for a commission from the lender.

In this example the mortgage broker receives $3,750 from you in origination fees. This is compensation for their work in arranging your mortgage; however, a reasonable amount to pay is no more than one percent. In this example 1.5 percent is too much. In addition to overcharging you for origination fees, the mortgage broker receives a commission from the lender for inflating your interest rate. In this example the broker pockets an additional 3.0%, or $7,500 for overcharging you. This fee is Yield Spread Premium. The broker walks away with $11,250 at your expense for little more than a few hours work.

Yield Spread Premium is Dishonest

The overwhelming majority of mortgage brokers will never admit what they’re doing with your mortgage rate. Those that do often become defensive and even angry about any questioning regarding this fee; they will often tell you “since the fee isn’t coming out of your pocket don’t worry about it.” The fact of the matter is this fee is advantageous and dishonest. A bill is currently making its way through the House of Representatives making Yield Spread Premium illegal. If this happens how will your mortgage broker afford their boat payments? Too bad for them.

Until Yield Spread Premium is illegal, savvy homeowners who learn to recognize this unnecessary markup can avoid paying it when refinancing. By avoiding Yield Spread Premium you’ll be able to refinance with wholesale mortgage rates, potentially lowering your monthly payment amount by hundreds of dollars. Refinancing with a wholesale mortgage rate isn’t as difficult as you think. You’ll need to find a mortgage broker willing to work for the origination fee alone, without receiving the kickback from the wholesale lender. Honest mortgage brokers do exist; however they can be difficult to find.

How to Find an Honest Mortgage Broker

Your best bet in finding an honest person to originate your mortgage is to look for a local, self-employed broker. A representative a large brokerage house may not have the authority to refinance your mortgage without Yield Spread Premium; in this case mom and pop shops can be the best way to go. Start by contacting local mortgage brokers in your phone book and telling them that you are looking for a mortgage without Yield Spread Premium. Explain that you understand how the markup works and are willing to pay a reasonable origination fee for their work; however, you will not accept a higher mortgage rate for any lender paid compensation. Once you find a mortgage broker willing to work for an origination fee alone you are well on your way to saving thousands of dollars on your next mortgage.

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The mortgage industry is undergoing the worst crisis lenders have ever faced; if you’re considering refinancing your mortgage it’s more important than ever do your homework and choose an honest lender. Here five common mortgage refinancing mistakes you need to avoid in order avoiding paying too much for your next loan.

Mistake Number One: Going for the “Cheapest” Loan

The cheapest mortgage offer isn’t necessarily the best loan for your situation. Turn on the television and you’ll see lenders bragging about their “unbelievable mortgage rates” or “no closing costs” loan offers. These loans are nearly always loaded with fees and unnecessary markup of your mortgage interest rate; always treat these loan offers with a healthy dose of skepticism. Most mortgage representatives are simply trying to get your application and commit to the loan; after you’ve done this you are at the mortgage company’s mercy for rates and fees. This is why you should choose loan offers carefully and make sure nothing changes once you’ve committed to a loan offer.

Mistake Number Two: Comparing Dissimilar Loan Offers

When you’re comparing mortgage offers it’s important to compare similar loan types. Comparing a 30 year fixed rate mortgage to a 15 year loan with an Adjustable Mortgage Rate does you no good. Keep in mind that a company with great fixed rate loans may not have the best adjustable rate offers. Make sure you are using the Good Faith Estimate to compare loan offers and are making apples to apples comparisons before choosing a lender.

Mistake Number Three: Relying on the Annual Percentage Rate

Many people think the Annual Percentage Rate (APR) is the best way to compare loan offers. While it’s true that Truth-in-Lending laws require lenders to publish Annual Percentage Rates, which is supposed to tell you the total cost of a loan expressed as an annual percentage, there is no standard for calculating this rate. The APR from one lender may not reflect the same costs as an APR from another, making this figure completely useless.

Mistake Number Four: Not Requesting a Good Faith Estimate

Mortgage lenders are required to provide you the Good Faith Estimate after receiving your application; however, most lenders will provide you this document upon request. This document is an itemized list of all expected fees you will be responsible for paying; however, keep in mind that the Good Faith Estimate is only an estimate. Dishonest mortgage companies change loan offers and terms after you’ve committed to a loan. This is why it’s important to reconcile your Good Faith Estimate with the HUD-1 statement before signing the contract.

Mistake Number Five: Shopping Over a Period of Time

Interest rates change on a daily basis. If you do your comparison shopping over a period of days or weeks the mortgage rates you compare may no longer be available. Try to limit your comparison shopping to one morning or afternoon at a time. This will allow you to keep up with changing interest rates.

You can learn more about your mortgage refinancing options, including other mistakes to avoid by registering for a free video tutorial. The videos walk you through the entire process of refinancing with a wholesale mortgage rate, saving you thousands of dollars in the process.

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If you are in the market for a mortgage to purchase your home or refinance an existing mortgage doing your homework will help you find the best mortgage for your situation. Doing your homework means researching how mortgage companies and brokers make their money and how this compensation affects your loan. The most common pitfalls result in overpaying thousands of dollars and can be easily avoided just by doing your homework before applying for a mortgage. loan Here are several tips to help you find the best mortgage loan for your situation.

Finding The Best Mortgage

Comparison shopping from a variety of mortgage offers will help you find the best mortgage. It is important to understand what you’re looking at when comparison shopping; knowing how to compare loan offers can be confusing for many homeowners. With so many different factors to consider when taking out a mortgage, how do you know which type of mortgage rate, term length or APR is best?

How to Compare Mortgage Offers

The first thing you need to know about comparing mortgage offers is that the Annual Percentage Rate (APR) will not tell you anything about the mortgage loans you are considering. Truth in Lending legislation in the United States requires lenders to publish Annual Percentage Rates for their loans; however, there is no standard method for lenders to calculate their Annual Percentage Rates including which fees they are required to include in the calculation.

If the Annual Percentage Rate is not a reliable method of comparison shopping how do you know which mortgage is better? If you discard the APR the best way to compare fees associated with each loan is by using the Good Faith Estimate and HUD-1 Statement.

Good Faith Estimate

The Good Faith Estimate (GFE) is an itemized list of all fees associated with a mortgage offer. Mortgage lenders are required to provide you with the Good Faith Estimate within 24 hours of receiving your application; however, most will give you one upon request. Remember that the Good Faith Estimate is really just an estimate; many brokers omit fees including their own markup of your mortgage rate to make their loan offers seem more attractive. This is why you should always reconcile what your mortgage broker tells you with the HUD-1 statement before closing on the loan.

You can learn more about comparison shopping for the best mortgage by registering for a free mortgage refinancing DVD.

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