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How Much Will My Mortgage Really Cost?

By Mary Lamphere

If you're planning on buying a home in Oklahoma, chances are you've already saved up a set amount of money for the down payment, you're prepared to pay closing costs and you may even have already been "pre-qualified" with a lender to determine how much home you can afford. Now what? Have you stopped to think about how much your mortgage will really cost you? Did you know that even a seemingly small reduction in the mortgage interest rate could save you tens of thousands over the life of your loan? These are all factors that you should consider when adding up the real costs of a mortgage loan.

Buying a home is a major decision and one that most people plan for in great detail. Unfortunately, even people who seem to have covered all of their bases when preparing for a home purchase often overlook some of the fees that will be involved. Undoubtedly, you will encounter the following fees when purchasing a home:

  • Closing costs
  • Credit report fees
  • Application fees
  • Loan origination fees
  • Loan discount points or prepaid interest
  • Property taxes
  • Insurance
  • Mortgage interest

How Interest Rates Affect Total Mortgage Costs

Your mortgage interest rate can make or break the total amount of money that you will spend on a loan. On a $200,000 home mortgage at 6% interest for 30 years, the total cost of the loan will be over $500,000! A reduction of the total interest to 5.25%, only three quarters of a percentage point, the total cost of the same $200,000 mortgage over 30 years is reduced to about $470,000, a savings of $30,000!

So, what can you do to reduce your interest rate and potentially save tens of thousands on your mortgage? Some of the ways that you can secure better interest rates on a home loan include:

  • improving your credit score before seeking a home loan
  • reducing debt to income ratio
  • having a down payment of at least 20% of the total home loan amount
  • shopping around for better rates
  • reducing the duration of the loan you are seeking for instance from 30 years to 15

Other Fees Associated with a Mortgage

In addition to the closing costs and the interest that you will pay over the life of the loan, mortgages have various other fees involved such as underwriting fees and processing fees. You may incur charges for the processing of the loan documents, title research fees to ensure that the home you are purchasing has a clean and clear title, and land surveying fees to ensure that the property is clearly outlined and boundaries are properly stipulated in the mortgage documents.

Different lenders could charge different fees so it's important to shop around and to take your time in deciding which lender and which mortgage program is going to be most affordable and suitable for you. Pay close attention to the fees associated with each mortgage program or lender that you review as failure to do so could prove to be very costly in the end. Some lenders may require more money at closing but will reduce your monthly mortgage while others may allow you to pay less upfront money but require you to pay more on your monthly bill.

Everyone has their own needs and each situation is quite different. Ask your lender questions and don't be afraid to follow up with your own research to ensure that you fully understand what the total cost of your home loan will be.

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