Lenders rarely help determine the total cost of a loan.
As a result, you will have many other charges to consider
and absorb in totaling the price of your loan. Annual
percentage rates of a mortgage are difficult to understand;
therefore, it is important to review all the similar
costs of ARMs.
Unlike other purchases, mortgages have variable pricing.
Most lenders will determine the rate of interest, points,
and other fees, but leave the calculation up to you,
yet you need to know the total cost so you can compare
this loan with rates offered by other lenders.
Using the APR to compare lenders is not always the
most advantageous. There are actually two ways you can
calculate the total cost of a loan, which will allow
you to compare not only fixed rate, but also adjustable
rate mortgage loans.
Fixed Rate Cost Analysis
First, begin with a monthly statement to help you determine
the interest cost left on your current loan. Second,
take the monthly payment you are about to make and then
total the monthly interest amounts from that payment
up to and including your last payment. Next, get a written
quote for all fees you will be charged for refinancing.
Then, refinance your interest charges using the new
loan rate. If you choose not to remortgage, you will
pay the sum of interest calculated in your first step.
If you choose to remortgage, compare your preliminary
sum with your secondary total.
Adjustable Rate Cost Analysis
To justify refinancing with an ARM, you need to show
the savings that could be yours by adding up the total
cost of your present loan and contrasting that with
the total cost of your new loan. The cost of your present
loan should include additional fees and future interest
charges for the rest of the period.
If you are planning in live in your present home for
five or more years, you will need to know what the principal
will be in five years from now, taking into account
your current mortgage and your new loan.