With the current state of the real estate market, countless mortgage loan myths are floating around to attempt to dissuade potential homeowners from buying a home. For example, you’ve probably heard that the 30 year, fixed-rate mortgage is the way to go – bar none. But that may not always be the case! Here is the truth about that common misconception, as well as two more of the most well known mortgage loan myths.

Myth #1 – A 30 Year Fixed Mortgage is the Way to Go

Your parents did it. Maybe even your grandparents. Yes, a 30 year fixed rate is the way to go! This payment plan is universally attractive because it makes your house payments more reasonable. The 30 year fixed rate mortgage appears to be one of those low interest mortgage loans, but the truth is that you’ll pay more in interest over time with a 30 year fixed rate than you will with a 15 year fixed rate or possibly an adjustable rate mortgage. Ideally, you may want to go ahead and apply for a 30 year mortgage, but pay it off in 15 – just make sure that the monthly payments are manageable according to your financial situation, and that you won’t be penalized for making extra payments on your home loan. If you’re not sure what your monthly payments might be, it’s a good idea to use a mortgage calculator online to get some approximate numbers.

Myth #2 – Zero Point Loans are a Good Deal

Yes, zero-point loans are a good deal if, and only if, you plan on staying in your home for three years or less. Otherwise, zero point loans should make you think twice. Essentially, you’re not paying anything up front in terms of a reduction in points, and yet the bank will continue to make extra money in the form of your payment that goes to interest. Multiply this by thirty years and you can see how the bank is giving up a little cash in the beginning, to get a LOT more later. If you’re planning on staying in your home for the long haul, it may be worth paying the fees up front and reducing your interest so that you’ll pay less over time.

Myth #3 – APR is All You Have to Look At

The biggest lenders with low interest mortgage loans proudly display their rate sheets on their websites. You can even see some of them online and compare them. While there’s nothing wrong with shopping around online to find the best deals (and it’s a good idea, considering how competitive banks and lenders have become recently!), APR is not solely what you want to compare and base your decision on. Of course, the APR is great for smaller purchases, like cars, where you will most likely pay off the loan in a few years. Few people actually pay off their entire 30 year mortgage loan without any changes to it whatsoever. They refinance, they relocate, move into a bigger home or downsize. Life happens – and mortgages change with it. That’s why, instead of looking solely at APR, you’ll want to look at the actual interest rate. A mortgage loan’s up-front costs are just a fraction of what you’ll be paying over time, so focusing on the interest rate instead of the many additional fees that are added on is what you’ll want to do. Between most lenders, the fees only vary a small amount, so it’s better to choose a bank with low interest mortgage loans to get the better deal on your home loan.

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Tags

• aurora
• banking
• buying a home
• home loans
• homes
• loans
• mortgage loan

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