Reading the Fine Print on Mortgages

Tom Adkins

It’s time to find a mortgage. But there could be nasty surprises in the “fine print.” So what should you look for? Here’s a quick list:

Lenders usually charge fees for closing, underwriting, processing, couriers and anything else they can dream up. Borrowers can usually get many of them waived, especially on large mortgages. Just negotiate up front.

Most lenders demand a “lock-in” fee to guarantee rates. This not unusual, just make sure it’s applied towards your closing costs at settlement.

An “origination fee” is typically one percent of the loan, and supposedly the lenders profit. “Discount points” are theoretically prepaid interest, giving you a lower rate. Beware! Unscrupulous lenders often goad buyers into paying points while locking in at higher rates. It’s called “overage” in the lending industry, usually split with the loan officer. Generally, zero points are best, with some exceptions.

With all this money flying around, it’s a good idea to ask your title agent for a “rough” settlement sheet in advance.

Fixed rate mortgages are fairly straightforward, but adjustables are a different story. There are a few basics to understand. The term is the length of the mortgage. The adjustment period is how often the loan changes. The index is the source your rate change is based upon. The lender adds a margin, and that’s your new rate. Interest-only loans don’t pay off any debt. Negative amortization allows you to defer part of your payment, adding to the debt. Be aware of prepayment penalties and balloon payments. Don’t fear these things — just understand them.

And be very aware of penalties. Friendly terms may change dramatically with one mistake.

Know your mortgage! Remember, lenders usually have many loans to pick from.

Shop hard, pay attention, ask questions, and don’t be afraid to negotiate. And get everything in writing.

Now, go buy a house!

This weekend our Business Block has much more on the dilemma of buying a home. Tune in Saturday 10am — noon ET.

Tom Adkins is the publisher of and appears regularly on FNC's business program Cashin' In.