Questions to Ask Your Mortgage Broker or Lender ?

Answer 1

Many people found themselves in trouble with their mortgages simply because they didn't understand what they were signing before they signed it. People entered into adjustable rate mortgages without realizing how much the monthly payments could increase when interest rates rose.

There are questions to ask your mortgage broker or lender. This is not meant to be an exhaustive list, but it should point you in the right direction about the questions you should ask. Also remember that what a mortgage broker says in person is not legally binding. Ask them to point out their response in the mortgage papers.

If this is an adjustable rate mortgage, what are the limits to raising the mortgage payment?

First and foremost, you know whether or not you have a fixed rate or adjustable rate mortgage. With a fixed rate, the mortgage interest rate cannot increase due to interest rates in the open market. It is different with an adjustable rate mortgage. But even an adjustable rate mortgage will have limits to the interest rate increase, as well as the frequency of rate increases.

Find out not only the interest rate differences, but find out how this will affect your monthly payment. People are often surprised at how much even a single percentage rate will increase the monthly payment.

For instance, if you have a $200,000 mortgage at 5%, the monthly payment will be $1073.64. Could you afford an increase in your monthly payment of $263.00? That's how much your payment would increase if your interest rate was suddenly increased to 7%. Obtain these numbers from your lender or broker, or use a mortgage calculator to calculate them yourself. But obtain these figures and decide whether you can afford the worst case scenario.

Does the mortgage contain prepayment penalties?

This may not be a big issue unless you intend to pay off your mortgage early. It will become a big issue if you decide to refinance several years down the road. If there are prepayment penalties, learn what they are.

What are the closing costs?

Closing costs can be thousands of dollars in a typical mortgage transaction. If this is a refinance, are all of the closing costs necessary? If the property had been appraised 2 years prior, is another necessary? Is there a way to avoid prepaid points? Are there any tasks that you can perform to reduce costs?

Is the mortgage being sold or will it be administered in house?

This is a preference with some people. Mortgage brokers never service mortgages in house, because they do not own the mortgage; they merely find a lender for the borrower. But if you are one that prefers to meet with your banker periodically, you may consider finding a local bank that services their own mortgages.

A mortgage transaction is often the most complicated business transaction, and the most expensive, a person makes in their lifetime. A little knowledge can go a long way towards keeping you on top of things, and avoiding an expected disaster in the future.