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Mistakes in Selecting a Mortgage
Assume that the amount of interest you pay over the life of the mortgage is more important than the interest rate.
Assume that paying points is a loser.
Assume the amount of cash you put into the transaction is the same as the down payment.
Assume that a "no-closing cost loan" is a good deal.
Assume that the cost of mortgage insurance is the premium rate which is comparable to the interest rate.
Assume that ARMs are to be avoided unless you need one to qualify.
Assume that negative amortization is to be avoided at all costs.
Assume that you must pay extra to convert a monthly payment loan into a biweekly payment loan.
Make a large down payment on an FHA loan.
Neglect to ask about the second mortgage lender's policy on subordination.
Neglect to ask whether your loan has a prepayment penalty, and verify the answer on the Truth in Lending (TIL) disclosure statement.
Use the APR to assess the cost of different mortgages, even though you expect to be in your house only a few years.
Use the APR to assess the cost of a cash-out refinance with the cost of a second mortgage, or the cost of different HELOCs.
Believe it when you are told that you will save money with a simple interest mortgage.
If you have a simple interest mortgage, not making your monthly payments early.
Assume that because you are a veteran, your VA loan will be fairly priced.
Believe that an interest-only loan is less costly to amortize, or carries a lower interest rate than the same loan without the interest-only option.
Believe that on an interest-only ARM, the initial rate holds for as long as the interest-only period.
Select a flexible payment ARM without considering the risk of serious payment shock down the road.
Assume that the rate index used by an ARM, such as COFI, Libor, MTA, etc, is all you need to know to assess the ARM.
Base a loan selection on the payment including the escrow payments.
Take a 30-year FRM, even though you can afford the payment on a 15-year FRM, in the expectation that you will invest the cash flow difference.
Confuse the payment rate with the interest rate.