When it comes to shopping for new mortgages, it’s a different ball game today. There have been numerous changes over the past few years when we’re talking about mortgage borrowing.

Subprime loans, which is partially responsible for the housing boom, are no longer available. And mortgages that didn’t require borrowers to show proof of income, those are also no longer available.

And if you’re looking into the traditional mortgage, there are 3 things for you to consider: Paying for points, your downpayment, and locking in rates.

Paying for points

Borrowers can pay points; a one time, up front fee that will drop your interest rate on your mortgage. One point is 1% of the mortgage value.

Before when you paid a point,  you were looking at a quarter point drop on your interest rate, but today, you can expect half to a full point drop on your interest rate. That is phenomonal.

So if you paid 1 point on a $200,000 mortgage ($2,000), you might see your 6% interest rate drop to 5%. And that means your monthly mortgage payment would be $126 lower each month. In 3 year’s time, your investment of paying a point up front will be returned back to you.

You shouldn’t pay for points if you’re planning to refinance or sell within a few years, since paying for points is a long term financial strategy.

Your downpayment

Before the real estate bubble popped, homebuyers were putting down more than the required 20% downpayment. Is that a good idea now? Not really, and here’s why. High downpayments can disappear in real estate markets that are declining.

You might think that putting down more will give you a stable home equity cushion, but that’s no longer so. In times like these, it’s best to protect yourself by sticking with 20%.

Locking in the mortgage rate

Many borrowers choose not to lock in rates when they’re falling, because they assume that the rates will only go lower. But the interest rates can go both ways; they drop slow, but they rise fast.

When you see interest rate numbers that work for your financial situation, it’s best to lock it in. Better to have it now, than never. You don’t want to lose sleep over it, so play it safe.

Remember to keep these 3 factors in mind when you’re looking at refinancing or acquiring a new home loan.

This entry was posted on Thursday, February 5th, 2009 at 12:03 pm. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.