When applying for a mortgage loan, one of the key initial disclosures you will receive is a Loan Estimate. This Loan Estimate breaks down the terms of your new mortgage loan as well as the closing costs associated with the loan.
On page 3 of the Loan Estimate, you will see a chart labeled “Comparisons”. This table outlines three key points:
- Mortgage payments made for the first 5 years
- Annual Percentage Rate (or “APR”)
- Total Interest Percentage
In the section for payments made in the first 5 years, you will see two figures: The first reflects the total you will have paid in principal, interest, mortgage insurance, and loan costs. The second number outlines how much principal you will have paid off. Keep in mind that these figures assume that you make only the scheduled mortgage payments in the first five years.
The APR is a measure of the interest rate plus the closing costs factored over the loan term as a percentage. This should be strictly used as a reference point. APR rates can vary from lender to lender, so it is important to not make this the only focal point when considering loan programs.
The Total Interest Percentage is the total amount of interest you will pay over the loan term as a percentage of your loan amount. It is important to note that this once again assumes that you are making the scheduled payments through the entirety of the loan and that you will keep the mortgage for the entire term.
Conventional, VA, and FHA loans do not have prepayment penalties. That means you can pay the loan off whenever you want and you can make additional principal payments. While making additional principal payments won’t change your scheduled monthly payments, it will help you pay your loan off sooner and decrease the total amount of interest you pay over the life of your loan.
Keep this table, and the assumptions involved in the calculation of these figures, in mind as you shop for a mortgage. If you have any questions, give us a call at (760)930-0569 and our Mortgage Loan Originators will be happy to assist you with your mortgage questions.
