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FDIC Consumer News
Special 10th Anniversary Edition - Fall 2003
Questions to Ask Before Signing a Contract on a Home Loan
What is the APR the annual percentage rate? Is this the lowest rate you can offer?
The APR is the total cost of the loan, including interest charges and other fees, expressed as a yearly rate. Comparison shop among several lenders so you have a good sense of the costs you should be incurring, then negotiate the best possible terms.
What "points" and fees would I be charged?
Are any of these charges being added to the loan balance and increasing my payments? Each point equals one percent of the loan amount. Make sure you have a good understanding of all costs and conditions.
Does the loan include fees for credit protection that would cover the loan payment if I die, become ill or unemployed?
Most credit protection is optional. Determine if you already have adequate insurance or savings to cover these events. If you need additional coverage, consider your options and costs.
Is there a prepayment penalty if I pay off the loan early by refinancing or selling my house?
If so, is that stated in the documents? A loan with a prepayment penalty may have a lower interest rate than the same loan without a prepayment penalty, but the penalty can limit your flexibility to refinance or otherwise pay off the loan. Try to determine what is appropriate for your circumstances.
Do any of the loan terms differ from what was previously discussed or provided?
Review documents prior to signing them and make sure you understand why any changes in terms and conditions have been made and that you agree with them.
What will my monthly payment be?
What would cause the payment to change? Just because a lender says you qualify for a certain loan amount doesn't mean you are getting a loan that is affordable for you.
Is there a "balloon" payment?
Excerpted from "Questions to Ask Before Signing a Loan Contract," Summer 2002.
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