Getting a mortgage is always exciting. That’s mainly because a mortgage actually means buying a dream home. Being so close to achieving their homeownership dreams can persuade many homebuyers to overlook a series of factors that could turn into real problems down the road.
To help homebuyers make an informed decision before signing over a mortgage, we’ve outlined three key considerations below.
1. Late Payment Penalties, Pre-Payment Penalties and Other Fees
Most mortgages include pre-payment and late payment penalty provisions. Before signing on the dotted line, the borrower should carefully check if there are any penalties for falling behind on mortgage payments, for making extra payments to shorten the length of the loan or for paying off the mortgage early (e.g. when refinancing).
Under Florida law, lenders are allowed to charge a late fee of 5% of the overdue payment of principal and interest, after a minimum grace period of 10 days. All mortgage contracts should contain information about the penalty provisions for late payments and grace periods.
On the other hand, the rationale behind pre-payment penalties is that paying off a mortgage sooner than the full term deprives the lender of the interest he would have otherwise collected over the life of the loan. In Florida, lenders can charge pre-payment penalties without limit, as long as the penalty percentage is specified in the mortgage contract. Since a pre-payment penalty as low as 1% can translate into thousands of dollars (e.g. $2,000 on a $200,000 home loan), borrowers should carefully examine their contracts, including the fine print, before signing over a mortgage. If no pre-payment penalty is to be applied, that should be clearly stated.
Some mortgages also tie in clauses that require borrowers to purchase private mortgage insurance, title insurance or mortgage payment protection insurance from a specific company. This means that the borrower cannot shop around for the most competitive insurance products.
Another essential aspect is that some mortgages include hidden fees as closing costs. To avoid paying more, it’s advisable to request a copy of the closing statement and compare it with the Good Faith Estimate.
2. Interest Rate
The interest rate is another thing a homebuyer should check before signing over a mortgage. Though the lender might have promised a certain level of interest rate, the mortgage contract may include a higher rate if the rate has increased in the meantime.
The borrowers opting for adjustable-rate mortgages should review the documents to ensure the interest rate won’t go above a certain percentage. Checking the documents will allow them to find out the interest they’ll pay during and after the introductory period as well as the maximum rate that can be charged during the life of the loan.
3. Repayment Period and Total Amount
The third most important aspect that should be taken into account is the repayment period. Most mortgages are repaid over an agreed period of 15 or 30 years. When considering the repayment term, a homebuyer should factor in the total amount he will eventually pay along with the factors that may affect his ability to make those monthly payments for the entire time.
Since taking out a home loan is a serious financial commitment, considering all the things explained above is something that every homebuyer should do before signing over a mortgage and getting the keys to his dream home.
If you’re looking for a mortgage with flexible terms that ensure affordable payment plans, we invite you to check out the mortgage programs we offer at North Florida Mortgage or contact us today to discuss your options.
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