Shopping for a Mortgage: Considering More Than Rates

By Karen Lawson
Local Lender Columnist
Aug 20, 2007
Your noisy neighbors woke you up again, and the landlord just raised the rent. It's time to buy a home. You're inbox is loaded with spam offering low rates and fast mortgage approval. Before you decide on a mortgage, it's important to consider your long term plans and mortgage terms in addition to interest rates.

Understanding Rates and APR

Knowing how to read mortgage documents can help you save a lot of money and headaches later. Mortgage lenders may emphasize low interest rates, but you'll want to pay close attention to the annual percentage rate, or APR. Lenders are required by federal law to disclose the full cost of mortgage financing as calculated on an annual basis. APRs are stated as percentage rates, so it's easy to compare advertised interest rates to the APR. The APR includes fees and charges, and may also include deferred interest depending on your mortgage terms.

Avoiding Mortgage Surprises

It's easy to be drawn in by low initial rates, or teaser rates, but what will happen when your rate increases? Your payment will go up, and depending on your mortgage terms, your principle balance may also increase! Many homeowners have been surprised by large increases in their payments, but deferred interest, also called negative amortization, can erode equity as well. Before choosing a mortgage, it's a good idea to learn about local market trends. Declining or slow markets combined with negative amortization can lead to problems later. Attending a free first time homebuyer's seminar offered by Detroit area lenders and real estate companies can help you learn how to match a mortgage to your needs and budget.

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds a Master's degree in English from the University of Nevada, Reno.