Although for many, skimming over a contract and signing it is the norm, however this may not be how you want to handle things when it comes to your mortgage contract. Never be embarrassed for reading your loan contract and questioning any terms and/or fees, even if you have to spend an hour doing so in front of your lending representative. Even if you don’t have the necessary skills or knowledge in regards to mortgage terms, there’s always help available to understand a credit card, mortgage or other type of loan agreement. This is why it’s crucial to work with a reputable and trusted mortgage loan originator.
Here are several factors to keep in mind when going over your mortgage documents.
Compare Rates and Closing Costs
Even if you’ve already found your perfect quote and what you feel is the lowest rate available, compare information on your Good Faith Estimate (GFE) and Truth-in-Lending (TIL) form with closing docs. Lenders are legally bound to honor the terms listed on your final GFE, generally received after you lock your loan.
In addition, other key components to go over during the reading of the contract are the principal amount, the mortgage term, amortization and the rate adjustment.
– The principal amount – your total mortgage balance.
– The mortgage term (length) – most mortgage in today’s market are 15- to 30-year terms.
– Amortization is an important part to address if there are anticipated balloon payments or if there is a potential for negative amortization – fully understand these terms before you sign the final docs.
– If you got an adjustable-rate mortgage, then you’ll want to be fully aware of how long your fixed rate period is to avoid “payment shock.”
Understand ARM Terms
If you’re attracted by the significantly lower rates and initial fixed rate period that comes with an ARM, be sure you understand the difference in a total fixed rate loan contract and the one you’re entering into. Three things that ARM borrowers typically want to check for are:
– The initial fixed rate period (introductory period).
– The index – the published rate that your loan will be based on following the expiration of the introductory period.
– The margin – the amount that is added onto the index by the lender when it calculates your rate.
Will You Be Penalized for Paying Off the Loan Early?
Unfortunately, some people might not be aware of existing prepayment penalties that hide in their mortgage contract. Those type of penalties are defined as “Hard” or “soft” penalties. Soft penalties are charged if you refinance or repay more than allowed in a given year – does NOT apply if you wish to sell your home. Hard prepayment penalties are charged ANY time you pre-pay more than the amount specified in your mortgage contract.
Understand Mortgage Delinquency and Consequences
It’s very important that a line of communication is always open between a lender and a borrower. Double check in the contract how your lender defines a default and what penalties you will owe if you endure a hardship and fall behind on payments. Taking note of your mortgage’s exact due date is essential. Grace periods are another detail to pay attention to.