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Short-Term Lending: Comparing the Competition


Before applying for a loan, it is better to shop around for finding the best mortgage that will meet your needs in a long term without hurting your budget. Give yourself enough time for comparing the loan offers of various lenders in order to select the best loan. It is wise to compare the policies and rules of different lenders. In some case you may have to pay a lower interest that will increase later. Some lenders can ask you to pay a higher interest rate in the beginning and they will lower it later. There are mortgage coming with fixed rates and others with adjustable or flexible rates.

When you select your loan, you should take on account various factors such as your income. You must know if your interest and income may increase, decrease, or even stay constant over time. If the loan is a mortgage, you need to know the time you can spend in your new property. If your income is high and you even expect a rise, the interest rate may stay the same for a while without increasing.

If you are planning to spend just few years in your new property, it is better to shop for a short-term loan. If you decide to sell your property after the assigned number of years, you will not face a redemption penalty. If you decide to stay longer than planned before, you can refund the matured loan.

If your income is not enough or is low and you are sure that it will not change and at the same time you plan to stay in your new property for many years, it is better to select the long-term fixed rate loan. You can pay monthly your interest without burden. In order to decrease the length of the loan and save a lot of money, you can apply extra monies paid monthly.

When you compare rates of various lenders, ensure to compare also the associated points because for the same loan, many lenders will enable you to choose among a diversity of points and rates. You have also to compare the features of the loan such as mortgage insurance payments, cash and credit reserve requirements, maximum LTV, qualifying ratios, and others features. Look carefully to the prepayment penalties and the availability and terms of conversion options such as option to convert an ARM to a fixed-rate mortgage and rate reduction option.

You will make sure to compare also the lock-in periods for each loan. There are periods during which the lender guarantees the points and interest rates quoted to you. Generally, the period is between thirty to sixty days but some lenders can reduce it to fifteen. Usually, the longer is the lock-in period, the higher is the loan price. You should select a long lock-in period so that you can pay back the loan before its expiration.

You need to compare the interest rates on the same day because rates vary daily or maybe twice in a day. Compare loan product of the same type from various lenders and on the same day. Fix all lenders at one lock-in period and interest rate. Add up the total lender fees for that rate including loan related fees and points. The lender with lower lender fees has a cheaper loan than the one with higher fees.