What is the total cost of my home mortgage?

Many people, first-time homebuyers especially, erroneously believe that the best home mortgage option is the one with the lowest interest rate. In fact, there are many factors that contribute to your total cost. The loan amount and interest rate are important, but you should also consider how much money you will pay over the life of the loan.

First, you’ll need to take into account any fees that your loan will incur. Lenders will often charge application fees and closing costs, which can be significant amounts of money. Make sure that you get an accurate estimate of such fees before you sign any papers.

Additionally, the total cost of your home mortgage will be greatly affected by the term, or the length of time you take to pay it back. In the long run, a 30-year term will cost far more than a 15-year term.

Some lenders will give you the option of paying points to bring down your interest rate. A point equals one percent of the amount of money you intend to borrow; for instance, one point would equal $1,500 for a $150,000 mortgage. Often, your lender will lower your interest rate depending on your willingness to pay one or more points at closing.

The variables that contribute to the total cost of your home mortgage become even more complicated with an adjustable-rate mortgage. Because this type of loan features an ever-changing interest rate, it is difficult to predict your total costs upfront. That is why adjustable-rate mortgages are considered relatively risky.