If you are considering applying for a mortgage, it is important to ask questions and have your questions answered. You need to feel comfortable that the decision you are making is the right one. Here are some questions you might want to ask.

Is there a prepayment penalty?
A prepayment penalty means that if you pay off your loan within a certain amount of time (by selling or refinancing) you will have to pay a penalty. Usually this penalty is several thousand dollars. Prepayment penalties are not always bad. In fact, you can usually get a lower interest rate if you have a prepayment penalty. But if you think you will be selling or refinancing your home within the next few years, it may be in your best interest to avoid having a prepayment penalty. In any case, you should at least know if you have one.

What loan program based on my situation will be right for me? Your mortgage broker should be able to help you decide on a mortgage. There are numerous loan programs to choose from such as Adjustable Rate Mortgages (ARM), Fixed Rate Mortgages, and Pay Option Arms. They will also be able to help you determine what the length of your loan term should be; 15 year, 30 year , 40 year, or even 50 year.

Do you have any client references? One of the best ways to find out if your broker is going to be right for you is by speaking to previous clients. Were they kept informed throughout the process? Were they happy with the service? Did the broker put them in the right loan program? Were the fees reasonable? Any reputable mortgage broker would be more than happy to give you references. It means a) You're a smart borrower who wants to know all the options and you don't rush into things. and b) You're seriously considering using this broker and just want to make absolutely sure.

If your mortgage broker is recommending an Adjustable Rate Mortgage, an important question to ask is "What are the caps on this loan?" You will want to know the caps, or maximum adjustment, for the initial adjustment, for each adjustment period after that and for the life of the loan.

What are interest rates based on? If the broker answers either treasury bonds or the Prime, RUN do not walk away. Interest rates are based on mortgage backed security's. If your broker is watching the wrong rate then you could get a bad deal. The Prime rate has some influence on mortgage rates but does not accurately reflect what rates are doing.

Do you have access to live, real time, mortgage bond quotes? (If a broker/lender cannot explain how Mortgage Bonds and interest rates are moving in real time and warn you in advance of a costly intra-day price change, you are talking with someone who is still reading yesterday’s newspaper, and probably not a professional with whom to entrust your home mortgage financing. Would you work with a stockbroker who is only able to grab yesterday’s paper to tell you how a stock traded yesterday, but had no idea what the movement looks like at the present time and what market conditions could cause changes in the near future? No way!)

Be smart... Ask questions… Get answers!

More than likely, this is one of the largest and most important financial transactions you will ever make. You might do this only four or five times in your entire life… but we do this every single day. It’s your home and your future. It’s our profession and our passion. We're ready to work for your best interest.

Don't be afraid to ask your mortgage broker exactly how much he is earning from your loan. Ask if you are being charged any Yield Spread Premium and what effect it has on your interest rate. Mortgage brokers are required to disclose their fees in writing in the form of a Good Faith Estimate. Honest brokers should have no problem letting you know up front the amount of their fees for your loan. Also keep in mind that the lowest fees do not mean the best service. If you shop based on fees and interest rate alone you may end up working with the biggest liar, not the best mortgage broker.

 

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