While planning to take a loan one needs to keep these points in
mind. Do a lot of research and contact several lenders including
banks, savings and loans, credit unions, and mortgage companies,
etc before selecting a particular lender. Ask each lender about
the type of loan that would best suit your needs. While making a
decision, compare:
* The annual percentage rate (APR): An APR is the most important
thing to compare different loans. It is determined on the
factors like interest rate, points, fees, and other credit
charges that the borrower is required to pay. The cost of the
loan depends on the APR i.e. the lower the APR, the lower the
cost of loan. Ask if the APR is fixed or adjustable -- that is,
will it change? If so, how often and how much will it change ?
* Points and fees: These charges are not refundable if pay off
the loan early. Points are generally are paid in cash at
closing, but may be financed. If you finance the points, you'll
have to pay additional interest, increasing the total cost of
your loan.
* The term of the loan: The duration for which you will make the
payments.
* The monthly payment: It is the amount that you will be paying
every month. Ask whether it will remain same or will change with
time.
* Balloon payments: This is a large payment generally made at
the end of the loan term and if you can't make the payment, you
may need another loan.
* Prepayment penalties: It is the extra fees that you may need
to pay in case you pay off the loan early by refinancing or
selling your home. These fees may force you to keep a high-rate
loan by making it too expensive to get out of the loan. If your
loan includes a prepayment penalty, understand the penalty you
would have to pay. Ask the lender if you can get a loan without
a prepayment penalty, and what that loan would cost. Then decide
what's right for you.
* Whether the interest rate for the loan will increase if you
default: An increased interest rate provision says that if you
miss a payment or pay late, you may have to pay a higher
interest rate for the rest of the loan term.
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