1. Closely Examine the Key Interest Rates and Terms.
The lender will list the annual interest rate in your documents. Make sure that you check this to ensure that it is correct. If the rate is just 10 basis points higher than you expected it to be, this can mean that you will be spending a lot more money over the life of the loan.
Your documents will also have your amortization written in the number of months. This is where a lot of errors occur. If this number is wrong, it can mean tens of thousands of dollars in interest over the life of the loan.
The length of your term will occupy the next line. It states how long you agreed to pay the lender and whether it is an open, fixed or variable mortgage.
2. Check for a Loan Prepayment Penalty.
In the event that you break the terms of your contract, your lender can charge you a penalty. An open mortgage allows you to make extra payments or pay your loan in full before the designated term is over. This isn’t the case for a variable mortgage. If you make changes to your variable mortgage, you may be charged as many as three extra mortgage payments and administrative fees. If you change the terms on a fixed-rate mortgage, the penalty will be a fee that could be very costly.
3. Know How Much Your Adjustable Rate Mortgage Will Adjust and When.
A homeowner was very happy to refinance his mortgage rate to 3.625% in 2012. When the loan matured seven years later, he wasn’t happy anymore. The interest rate went up to 4.75%, and the monthly payment went up by $268.51. The borrower was surprised by this because he never read the fine print on his loan agreement.
This man’s lender offered him an option to refinance his mortgage, and he decided that this was the best thing to do. Because of this expensive lesson that he learned, he may have chosen to read his new mortgage documents before he agreed to sign them.