5 Little Known Financial Secrets About Mortgage Loans

The Difference Between APR and Interest Rates

As we found out a few weeks ago, not even the head of the Consumer Financial Protection Bureau knew the difference between APR and interest rates. However, this number is even more important to understand than the interest rate itself.

Chances are, you know what the interest rate is. But did you know some banks will lower your interest rates but charge you hidden fees that get rolled into the loan? Every loan has fees associated with it – so to get an idea if you’re getting a good deal or not, you need to look at the whole picture: interest rate + fees.

According to the Mortgage CRM company Bntouch, this number is what’s called the APR or Annual Percentage Rate. By comparing APRs between mortgage banks, you’re comparing the fees + interest rates of each bank and thus better able to understand which deal you prefer. While a bank may be offering you a “low” interest rate, they may also be hammering you with hiddens fees.

Mortgage Interest can be Tax Deductible

It’s courteous of banks to inform you that mortgage interest rates are tax deductible but you would be shocked by how many don’t inform their consumers. While you should still check with your accountant for financial advice, just keep in the back of your mind that in your state, mortgage interest may be tax deductible.

There are City-Specific Local Mortgage Programs

Few people know about this, including local loan officers, but, there are normally city-sponsored mortgage programs for public sector employees. It’s not uncommon for cities to help pay mortgages for firefighters, teachers, police officers, and other public workers. However, instead of asking your local loan officers if there are programs available, ask city workers instead – they’re much more likely to know about available programs.

You can Shop The Best Interest Rates Without Ruining Your Credit

When you’re shopping around, it can feel scary to have your credit pulled by multiple institutions. However, creditors expect that you’re going to do this and offer some exceptions for mortgage shoppers. From the time you pull your first credit report, you normally have around 5 days to shop around and get your credit checked without any negative impact. Make sure to take full advantage of this, to get your credit checked all at the same time, and to not wait around when shopping.

Mortgages Aren’t Always in Your Best Interest

Depending on market conditions,a mortgage may not be in your best interest. Everyone sells mortgages as the idea of investing on your home. The only problem with this is that for the first few years, your mortgage payments are mostly interest payments on the loan and not actual equity that you build on your home. What we just said is so important we recommend you read it again.

The big problem arises when you’re not actually going to spend 30 years in that home. At that point, the mortgage is already not in your best interest. Additionally, if housing values are depreciating, then you’re literally throwing money away by investing in a mortgage. Not only do you pay interest first, but by losing value on your home, then you’re “underwater”.

To get the most value from a mortgage, seek three things:

  1. To provide the greatest down payment possible (unless you’re using that money to invest).
  2. Shop for the best interest rate AND APR.
  3. Research market conditions and forecasts by unbiased institutions to get a good idea if it’s the right time to buy or not.
  4. Get the minimum term possible on your mortgage.
  5. Make sure to read the mortgage schedule – this is a document your bank provides breaking down where your payments go towards (interest vs equity).

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