1. A 30 year fixed rate mortgage is always best
Incorrect. Thirty year mortgages are actually the most expensive loans our industry offers. What you get for your extra cost is long term rate protection…30 years worth. A 30 year fixed rate mortgage costs about 1% more in interest per year than a 7 year fixed/adjustable mortgage. That’s $250 more per month on a $300,000 mortgage or $21,000 more for the seven years. Since most people keep their mortgages for less than 7 years, almost everyone would actually benefit from not choosing a 30 year fixed loan.
2. The lowest APR (Annual Percentage Rate) is the best deal
It depends. A mortgage with a rate of 4.125% and an APR or 4.199% has $2000 more in fees than a mortgage with a rate of 4.25 and an APR of 4.25. It takes about 10 years to make up the $2000 difference with the 4.125% lower payment. So it really depends on how long you keep the mortgage.
3. All fees are included in the APR
Incorrect. Many of the largest fees associated with obtaining a mortgage do not affect the APR. Appraisal costs, title fees, notary fees, recording fees and credit report fees are just some of the costs that are reflected in the APR calculation.
4. National Banks are the best places to get mortgages
Almost never. National banks have a lot of employees and a lot of overhead. They also have stockholders to pay dividends to. Rates and fees are usually lower at small and midsize lenders. It is also very important to know that loan officers at national banks are exempt from all state and federal licensing. The loan officer who is handling your file may have had a different job at the bank last week and has no real knowledge or experience with mortgages.
5. Pay off your mortgage as soon as you can
Incorrect. Since mortgage interest rates are so low and only mortgage interest is tax deductible, there is almost always something better to do with your money than pay off your mortgage. Work to pay down higher interest debt or invest in something that will have a higher return.