What to Look for in a Home Loan

By Jennifer Tucker?
September 3, 2024 | 2 Min. Read

Choosing the right mortgage loan is an important step in the home-buying journey. You’ll be faced with a lot of choices and understanding what to look for in a home loan can make a big difference in your financial future. As you compare your mortgage options, here are some important factors to take into consideration:

Interest Rate. Interest rate refers to the cost of a loan to a borrower. It is the fee you pay for borrowing money, expressed as a percentage of the loan amount. The loan’s interest rate significantly affects your monthly payments. A loan with a lower interest rate can save you money in the long run.

Annual Percentage Rate (APR). APR is the annual cost of a loan to a borrower, including fees, such as mortgage insurance, most closing costs, and loan origination fees. APR is important because it represents the total cost of your home loan. It can be used to determine how much you’ll pay over the full life of the loan.

Loan Term. Home loans often come with either 15- or 30-year terms. A shorter-term loan typically has a higher monthly payment but a potentially lower interest rate. A longer-term loan may come with lower monthly payments but a higher interest rate. Your loan term will depend on your financial situation and short- and long-term goals.

Fixed Rate or Adjustable Rate. There are various types of mortgages, including fixed-rate and adjustable-rate loans. With a fixed-rate mortgage, the interest rate remains constant throughout the loan term. With an adjustable-rate mortgage, the interest rate can change periodically. Your loan type will depend on your financial situation and goals.

Down Payment. The size of your home down payment affects your loan amount, monthly payments, and need for private mortgage insurance (PMI). A larger down payment typically means lower monthly payments and less interest paid over time.

Closing Costs. There are a number of fees associated with processing your mortgage application, such as appraisal fees, title insurance, origination fees, and more. When you’re shopping for a mortgage, compare closing costs from different lenders to get the best deal.

Carefully consider these factors when comparing mortgage options from different lenders, and you’ll be prepared to make an informed choice that aligns with your financial situation and goals.