Question 1

How do I compare different mortgage options?

Accepted Answer

To compare mortgages effectively: 1) Compare APR (Annual Percentage Rate), not just interest rates—APR includes fees. 2) Calculate total cost over loan life (principal + interest + points). 3) Compare monthly payments for cash flow impact. 4) Consider loan terms (15 vs. 30 years). 5) Factor in discount points (upfront cost for lower rate). 6) Account for how long you'll keep the loan. 7) Compare closing costs. Our calculator shows side-by-side comparison of all key metrics for informed decisions.

Question 2

What are mortgage discount points and are they worth it?

Accepted Answer

Discount points are prepaid interest—you pay 1% of loan amount upfront to reduce your interest rate by about 0.25%. Example: On $300,000 loan, 1 point = $3,000 upfront, reduces rate from 6.5% to 6.25%, saves ~$30/month. Break-even: $3,000 ÷ $30 = 100 months (8.3 years). Worth it if: staying 10+ years, can afford upfront cost, itemizing tax deductions. Not worth if: selling within 5 years, tight on cash, non-itemizer. Calculate break-even point before buying points.

Question 3

Should I choose a 15-year or 30-year mortgage?

Accepted Answer

15-year mortgage: Pros: Pay off faster, save 50-60% on interest (often $100K+ on $300K loan), build equity quickly, typically 0.25-0.5% lower rate. Cons: Higher monthly payment (30-50% more), less flexibility, less tax deduction. 30-year mortgage: Pros: Lower monthly payment, more cash flow flexibility, more tax deduction, can invest difference elsewhere. Cons: Pay significantly more interest, slower equity build. Choose 15-year if: can afford higher payment, want debt-free sooner, nearing retirement. Choose 30-year if: need lower payments, want investment flexibility, maximize tax benefits.

Question 4

What is APR and how is it different from interest rate?

Accepted Answer

Interest rate is the cost of borrowing, expressed as percentage. APR (Annual Percentage Rate) includes interest rate PLUS fees (origination, points, mortgage insurance) annualized over loan term. Example: 6% interest rate with $3,000 fees might be 6.15% APR. Why it matters: Two loans at 6% interest can have different APRs (6.1% vs 6.3%) based on fees. Always compare APRs when shopping—it's the true cost of the loan. Federal law requires lenders to disclose APR within 3 days of application.

Question 5

How much can a lower interest rate save me?

Accepted Answer

Even small rate differences create huge savings over time. On $300,000 30-year mortgage: 6.5% rate = $1,896/month, $682,632 total paid. 6.0% rate = $1,799/month, $647,515 total paid. Savings: $97/month, $35,117 total (0.5% difference). 1% difference (6.5% vs 5.5%) saves ~$192/month, $69,120 total. On $500,000 loan, 1% saves ~$115,000 over 30 years. This is why shopping around (comparing 3-5 lenders) is critical—can save tens of thousands for a few hours of effort.

Question 6

What is the difference between fixed-rate and adjustable-rate mortgages (ARMs)?

Accepted Answer

Fixed-rate: Interest rate stays same for entire loan term. Pros: Predictable payments, protection from rising rates, simple to understand. Cons: Higher initial rate than ARMs, no benefit if rates drop (must refinance). Adjustable-rate (ARM): Rate fixed for initial period (5, 7, 10 years) then adjusts periodically. Pros: Lower initial rate (0.5-1% less), good if selling/refinancing before adjustment, rate caps limit increases. Cons: Payment uncertainty after adjustment, risk of higher rates, complexity. Choose fixed for: long-term stay, rising rate environment. Choose ARM for: selling within 7 years, falling rates expected.

Question 7

How do I calculate break-even on mortgage points?

Accepted Answer

Break-even formula: Upfront Points Cost ÷ Monthly Savings = Break-Even Months. Example: $300,000 loan, buy 1 point for $3,000, rate drops from 6.5% to 6.25%, monthly payment drops from $1,896 to $1,847 (saves $49/month). Break-even = $3,000 ÷ $49 = 61 months (5.1 years). Worth it if staying 6+ years. Also consider: Points are tax-deductible in purchase year, reduces interest over loan life, opportunity cost of upfront cash. Generally: 1 point = 0.25% rate reduction, needs 5-7 year hold to profit.

Question 8

What mortgage term should I choose?

Accepted Answer

Common terms and their use cases: 30-year: Most popular, lowest payment, maximum flexibility, most interest paid. Good for: first-time buyers, need low payments, want investment flexibility. 20-year: Middle ground, moderate payment increase, significant interest savings vs 30. Good for: established buyers, moderate income, balance of affordability and savings. 15-year: Highest payment, massive interest savings, fastest payoff. Good for: high income, nearing retirement, refinancing later in mortgage. 10-year: Very high payment, minimal interest, rare. Choose based on: monthly budget, retirement timeline, investment opportunities, risk tolerance.

Question 9

Should I refinance my mortgage?

Accepted Answer

Refinance makes sense when: Current rates are 0.75-1%+ lower than your rate, you'll stay in home long enough to recoup closing costs (2-4 years typically), your credit improved significantly (can get better rate), you want to eliminate PMI, you're switching from ARM to fixed, or removing FHA mortgage insurance. Calculate: New monthly savings × months staying = total savings. If > closing costs ($3,000-$6,000), refinance. Don't refinance if: selling within 2-3 years, restarting 30-year term when you're 10+ years into current mortgage (extends debt). Get 3-5 quotes, negotiate fees.

Question 10

What factors affect my mortgage interest rate?

Accepted Answer

Your mortgage rate depends on: Credit score (biggest factor: 740+ gets best rates, each 20 points = ~0.25% rate), Down payment (20%+ avoids PMI, gets better rates), Loan amount (conforming vs jumbo), Loan-to-value ratio (LTV: 80% best, 95% highest rates), Debt-to-income ratio (DTI: <36% ideal), Property type (primary residence lowest, investment property +0.5-1%), Loan term (15-year ~0.25-0.5% lower than 30), Points purchased, Market conditions, Lender. Improve rate by: increasing down payment, improving credit, reducing DTI, shopping multiple lenders.

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