The loans with the lowest interest rates aren't always the cheapest. In the end, the loans that cost you the least to pay back are the ones that cost you the least to pay back. By keeping this in mind as you look for the cheapest loans, you can save a lot of money.
When looking for the cheapest loans, you should pay close attention to the annual percentage rate (APR) and other features of each lender and loan option.
The other things that are important are the points and any extra fees that come with getting a loan. You need to think about how much it will cost to pay your loan broker, how long the loan will last, if there is a balloon payment, and if there is a charge or penalty for paying off the loan early.
Some of these things are actually included in the APR. It's the sum of the interest rate on the loan, the number of points, and any other fees. The less likely a loan is to be one of the cheapest ones, the higher its APR. Don't think that, though. Read all the small print and look at all the features.
When we talk about "points," we mean the fees you pay to the bank for lending you the money. Every point is equal to 1% of the loan amount. Points can be paid in cash up front, or they can be added to the total cost of the loan. The loans with the lowest points may be the ones that cost the least. Some of them make no sense at all.
Even the most affordable loans have extra costs. Your loan information should include a good faith estimate, which will list all of the fees you'll have to pay to close your cheapest loans deal.
When it comes to home loans, the most common loan fees are for appraisals, credit reports, the services of a tax professional, figuring out if there are flood problems, a title search, abstract, and examination, a title insurance premium, settlement fees, any attorney fees, inspections for termites and other pests, any surveying that needs to be done, recording fees, and taxes.
Extra fees are paid to the lender. One way to make sure you get the cheapest loans is to know what these are and compare them. You may have to pay the lender for approving the loan, processing it, getting documents ready, and sending them to you. If you want a mortgage broker's help, you'll also have to pay him or her.
All of these services aren't charged for by every lender. Some loans, even the cheapest ones, might not need all of these things. Again, this is another area where you need to compare prices. Some brokers get their money from the lender instead of the borrower.
This cost could be passed on to you, the borrower, in the form of points or a longer loan term. Do ask your lender what the broker is getting paid if you can't find it written anywhere. When you're looking for the fee on your Good Faith Estimate, it's usually written as YPS (Yield Spread Premium) or SPR (servicing release premium.)
