With mortgage interest rates remaining low, people who buy a home this spring may be lulled into accepting the rates they’re offered, certain that whatever they get is a good deal compared to previous years.
Without looking closely at all the details, however, additional factors can come into play that make a low interest rate not much of a bargain after all. Go Banking Rates (www.gobankingrates.com) offers four things to watch for when signing up for a new mortgage.
• Length of the loan: While 30-year fixed-rate mortgages have been the most popular for years, new options allow some consumers to stretch their mortgage out for 40 years or even 50 years. At first glance, this extra 10 to 20 years brings the monthly payment down and may allow consumers to move up into properties they never would have been able to consider. However, the length of the loan means that much more interest will be paid over the life of the loan.
• Private mortgage insurance: Consumers who purchase a home with less than a full 20 percent down have to purchase private mortgage insurance, which is insurance for the lender in case of default. Not only is PMI expensive (0.5 to 1 percent of the total loan), but the cost, when added to monthly expenses, could keep a consumer from qualifying for a home in a particular price bracket. PMI is supposed to be cancelled when the home reaches an 80 percent loan-to-value ratio. In truth, PMI is very difficult to get rid of, as lenders will change the requirements.
• Overvalued property: Municipalities don’t change their tax assessments every year, so a property still may be listed at a higher rate, even though property values have dropped. Appeals to the property tax board should be done quickly, if there’s any doubt about whether the assessment is current. Refunds often are limited to only the prior year.
• Refinancing: Even if refinancing at a lower rate, there might not be any real savings. The reason is that the old loan is being retired and a new loan generated — with all the typical costs of a brand-new home mortgage. Be sure to find out in advance what each of the fees and closing costs will be.
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