by Natalia Jones

Created on: December 30, 2010   Last Updated: January 02, 2011

Shopping for a mortgage is just as important as shopping for your home. While you may be busy deciding on the features you want to find in your next house, it is also wise to pay some attention to the terms and conditions of your finance arrangements. The following are a few things you should look for when shopping for a mortgage loan.

What is the Mortgage Term?

Most mortgages run for 25 years but this is by no means a standard term. A mortgage can be set to be repaid in 20, 30 or even 10 years. The longer the repayment period of the mortgage the smaller and more manageable are the monthly payments, but this also means that interest is spread over a longer term, so overall you pay more interest on a longer mortgage than on a shorter one, all things being equal. There are, however, advantages and disadvantages of opting for a longer term and a shorter term, so you need to assess your situation as well as what the lender recommends for you and make a decision.

Interest Rate and Mortgage Points

Different lenders may offer you different interest rates and mortgage points after analyzing your credit worthiness. Mortgage points basically represent money paid in by you to the lender to lower your interest rate. For instance, one lender may offer you a loan of 7% with zero mortgage points, which means that you have to pay nothing to get the quoted rate. Another lender may offer you a 6% loan with two mortgage points; which means you must pay down 2% to qualify for the rate. Generally speaking, it is usually worth your while to pay the points and accept the lower rate if your loan is going to last for more than seven years.

Are There Prepayment Penalties?

Some lenders discourage prepayments because they decrease your interest payments, which in turn decreases the profitability of your loan from the lender’s point of view. To do this they institute prepayment penalties. This is certainly something you should look out for, because, while you may not immediately be planning to pay more than the amount due per month, you may want to keep the option open if you are able to make principal payments in the future.

Other Terms and Conditions

Some lenders may offer more flexible repayment plans. For instance, you may have the option of paying every two weeks instead of every month. Doing this can increase the number of payments you make every year without affecting your cash flow, because it is the same dollar amount. Features like this should score extra points on the mortgage comparability scale.

All mortgages are not created equal, and, to ensure that you are choosing the one that is right for you, it pays to learn what to look for. Comparing the features listed above can ensure you find a mortgage loan that suits your financial situation.

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