5 Mortgage Facts You (Really, Seriously) Need to Know

One reason why the housing bust was so severe was that millions of homeowners got blindsided by the terms of their own mortgage loans. Yet years after the financial crisis, potential buyers still don't know everything they should about financing a home purchase -- even the most basic things.

Zillow recently surveyed prospective and current homeowners about their mortgage expertise, and results from the study reveal that many homebuyers don't know the answers to simple questions about mortgages.

To help fill in the gaps in their knowledge, let's look at five important facts you really need to know about your mortgage.

Fact 1: APR means "annual percentage rate" and measures mortgage costs.

The cost of mortgage loans is more complicated than you might think, as you can't just consider the stated mortgage rate. In addition to interest, you also have to take upfront origination fees, closing costs, and any mortgage points you pay into account in order to get a full sense of the total cost of your loan. The APR makes allowances for all those costs, giving you a better gauge against which to make comparisons between different lenders. Often, you'll find that lenders that offer lower rates actually end up charging a higher APR once you add in the fees.

Fact 2: Mortgage rates change rapidly.

Many homeowners mistakenly believe that mortgage rates are stable. Yet the same way that stocks, bonds, and other financial investments rise and fall throughout the day, mortgage rates are subject to the same market forces. As a result, even a quote you receive earlier on the same day might be out of date if you try to lock in later in the afternoon. That hasn't been a huge problem lately, with rates near all-time lows, but in more challenging interest rate environments, it's essential to understand the value of getting a mortgage rate locked in quickly.

Fact 3: Different lenders charge different rates and fees.

Mortgages have gotten a lot of attention from federal regulators lately, with efforts to prevent abuses and standardize procedures for getting mortgage loans. But there aren't any regulations that require different lenders to offer the same rates on mortgages. On top of that, lenders are free to charge different amounts in fees for related services like appraisals, title insurance, and credit checks. Comparing notes with different lenders will help you make sure you're paying as little as possible for those fees while getting the best rate you can find.

Fact 4: Refinancing may be possible even if you're underwater on your mortgage.

During the financial crisis, homeowners who suddenly found themselves owing more money on their mortgages than their homes were worth found it nearly impossible to take advantage of low interest rates to refinance their mortgages. But with federal government assistance through the Home Affordable Refinance Program or the FHA Streamline Refinance program, many homeowners have successfully refinanced their existing mortgages despite being underwater on their loans. Different rules apply depending on whether your loan is backed by Fannie Mae, Freddie Mac, or the Federal Housing Administration. But if you haven't refinanced lately, it's still worth looking to see if you qualify.

Fact 5: Low-down-payment loans are still available.

Ideally, putting 20 percent toward a down payment when you get a mortgage loan will give you immediate equity in your new home. But most people struggle to save up even a fraction of that amount. Under certain loan programs offered by federal agencies like the Federal Housing Administration, the Veteran's Administration, and the Department of Agriculture, you may be able to get financing with little or no money down. FHA loans in particular have become extremely popular recently, with terms that make 3.5 percent down payments possible.

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July 06 2014 at 1:05 PM Report abuse rate up rate down Reply
Michelle Courtney

Well, these are facts that you should know before you consider for sale Potts Point. These are basics actually so If you don't know them, take time and read this article. This is a MUST if you want to find the a good mortgage and a good house.


August 27 2013 at 11:03 PM Report abuse rate up rate down Reply

Excellent, well written article!! Thanks for getting this information out there Information such as that is always appreciated.


July 14 2013 at 4:33 PM Report abuse rate up rate down Reply

Waht? Nothing here about the length of the loan IE: 30 year, 20 year, 15 and now 10 year loans. Look at how much you pay in interest over the life of the loan. The shorter the loan period, the less you pay total. A few more dollars per month is usually all the difference, and well worth a shorter term. Other IMPORTANT things that was left out of the article are how terrible reverse mortgages are; how terrible sub-prime mortgages are (responsible for a lot of homes being worth less than what is owed a few years down the line, even in a good market) and HELOCs or Home Equity Lines of Credit which are nothing more than seconds, and all too easy to over indulge in for many home-owners. Let's have some of that, eh?

May 18 2013 at 5:02 AM Report abuse +1 rate up rate down Reply

how about the fact that your loan can be sold severaltimes and that you will have no idea who you owe money to-or even if the money you are paying is going to pay down your loan.

May 17 2013 at 11:48 PM Report abuse +2 rate up rate down Reply

Fact 1, because the goverment has made the GFE a joke, 99% of the lenders and mortgage companies over disclose. They do this because if they are under disclosed, the lenders or mortgage companys would have to "eat" the difference. So that being said, the correct APR is not even realized until a day or two before closing. So that being said, how do you shop for the "true" mortgage when all the numbers up front are inflated? HMMMMM

May 17 2013 at 3:25 PM Report abuse rate up rate down Reply

Fact 3 is incorrect. Lenders must select appraisers from a blind list and can only pass on the fee dollar for dollar. With regard to credit checks, the bank can select the credit agency, but again, the fee must be passed on dollar for dollar. Further lender are require to provide a GFE (Good Faith Estimate) with every loan closing. If their charges exceed the estimated costs by 10%, that amount must be refunded to borrowers. One way to easily compare loans from different lenders is to look at each lender's GFE. Two things to know: Banks are pigs and knowledge equals power. If you don't understand bank financing, get a referral to an experienced, reputable attorney who you can utilize to protect your interests.

May 17 2013 at 1:57 PM Report abuse rate up rate down Reply

Another reason the housing crash was so severe is that lenders refused to work with homeowners who had lost their jobs, or suddenly were underwater in their loans and couldn't sell their homes. I purchased my home in 2005 with 25% down, a conventional loan with good credit (not a sub prime loan). When I lost my job and the home became underwater, the servicer of the loan, Citi Mortgage, refused to do a refinance, suggested a short sale, which we did and had three contracts that they sat on for so long that the buyers went elsewhere, and eventually the bank foreclosed. After the foreclosure, they re sold the home for about a third of what was owed on it. Had they worked with me, or taken one of the short sale offers, the bank would not have taken such a great loss. I'm sure the bank got a government tax write off for the loss they took on my loan.

May 17 2013 at 12:27 PM Report abuse +3 rate up rate down Reply
4 replies to RMS's comment

Bluntly: Anyone who does not understand each and every point made above clearly and precisely - and a few more that come to mind - should not apply for a mortgage, much less get one.

How sad it is that stating the obvious has become a national reportorial past time - anything is better than having to think, or to search out information that is of actual relevance, timeliness or importance.

May 17 2013 at 8:17 AM Report abuse -1 rate up rate down Reply