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  • Writer's pictureDave Dail

All loans can be confusing. Home loans can be especially confusing.

Many are so similar, yet slightly different that they are easy to be confused with each other.

Plus, there are many terms like escrow- that have a lot of parts to them. Check out 5 things you need to know about your home loan.

1. Type of Loan-

Understanding the type of loan you are getting is crucial to your home purchase.

There are many loans out there and things can get confusing.

The most common loan is a 30 year fixed loan. This locks in an interest rate for the next 30 years. If interest rates rise (as we are seeing in 2022) and you purchased in 2015, with a 30 year fixed loan, your rate doesn’t change.

There are also adjustable rate mortgages (ARM), where the rates do change.

ARM loans lure buyers with very low interest rates that then adjust after 5-8 years.

Sometimes the adjustment increases every year after the first 5.

Many people got into financial trouble during the crash after 2008 because of these types of loans and not understanding how their payments changed with time.

If you do not completely understand what type you have, you can be in for surprises down the road.

2. Interest Rate-

Your interest rate is crucial in determining your monthly payment.

Is your interest rate 3%, or 4%?

Just points of a percentage will change your payment and sometimes a few points can suddenly push your mortgage out of your budget.

Interest rates currently (in Feb 2022) are changing at a rapid pace. Your rates can change from the time between when you submit your home loan application, and when your rate is locked in.

Make sure you speak with your loan officer about rates and how to get the best one for you and your situation.

3. Understand Escrow-

You need to know what is included in your escrow.

Do you have PMI or private mortgage insurance? How much do you have to pay down on your house before you do not pay that anymore?

Do you know how much your homeowners insurance is? Is it wrapped up into your escrow? Was it an option to pay separately?

What about your property taxes? How much are they? How are you paying for them? Like the homeowners insurance, sometimes you are able to pay them on your own without having them added to your mortgage.

Make sure you know where you are making these payments and how they are made.

It would not be good to miss your property tax payment and then have a fee because you thought you were paying it through your mortgage’s escrow.

4. Pay off Early Penalty-

Can you really get fined for paying off your loan early? Yup. But it all depends.

Make sure you read the details about your loan before you apply.

You do not want to be stuck in a set schedule without the option of paying it off. You can read more about pay off penalties here.

5. Early Pay Off Plan-

As long as you are able to, it is great to check out what steps you need to take to pay off your loan early.

Believe it or not, just a few extra payments towards your principal a year can dramatically reduce the life of your loan as well as thousands in interest. Check out some early payoff calculators here.

Bottom Line-

Make sure you understand as many of the ins and outs of your home loan as possible before you apply.

This way there are no surprises.

Home purchases are big purchases and home loans have a long duration.

Do your best to research so that you do not regret the decision you make in regards to a home loan.

Disclaimer: As always, please consult a loan officer to verify any and all questions or terms you have before purchasing a home- or any loan in that case.


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