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By Diane St James, © 2004

Mortgages are costly enough without making
mistakes that can mean thousands extra out
of your pocket.

Here are three tips to be aware of to save you
a lot of headaches and potential shock after
you have your mortgage.


Make sure you are getting the right mortgage
program for you. Do not just go for the 30 year
regular fixed rate loan as it may not be what's
best for you.

For example, you may be a first-time homebuyer in
which case you may be able to qualify for a special
first time homebuyer program or rate. This could
translate to a lower payment for you and possibly
less closing costs.

Another example could be for someone who moves
around because of employment relocation.
Are you planning on only being in your home
for another three to five years? Then you will want
to look at the Adjustable Rate Mortgage (hereinafter
referred to as an ARM).

A 3 year or a 5 year ARM program will be at a
lower interest rate for the initial fixed rate
term which again means a lower payment for you.


Make sure you know what all the fees on your
Good Faith estimate are for. If a figure does not
make sense to you or seems excessive, ask about it
or challenge it.

It is also a good idea to get a few different
loan quotes and estimates so that you can compare
them. Make certain that they are for the same loan
program and term though so you will be comparing
apples to apples.

Some things you just can't do anything about though.
I've heard some folks complain that their estimated
escrows are a large chunk of their estimate. This is
because if the lender is collecting each month for
your real estate taxes and homeowner's insurance, they
need to collect so many months to have in the escrow
account. If your taxes are $5000/year this figure
is liable to be one of the biggest on your estimate.

On a good note however if you are refinancing,
you will get back either in a reduced payoff balance
or after closing, the amount of money sitting in any
escrow account you may currently have on your existing


It is very hard to try to read through the whole
mortgage loan package before you sign it, but there
are some areas that you want to make sure you
review before signing.

Check to see whether there is a prepayment penalty
on your loan. There is a section for it on the Truth-
in-Lending disclosure but I would look for the verbiage
on the NOTE. Many mortgage loans do not have any
prepayment penalty but most sub prime mortgages do.
This may or may not have been explained to you by
whomever took your mortgage application. This penalty
can be stiff if you decide to refinance and pay off your
mortgage before the penalty period is past.

If you are getting an ARM, know what the interest
rate caps are, especially the lifetime cap. This is
the highest your rate or payment can go and it may
be an eye opener and a shock if you aren't aware
of it before it happens, that is if you keep the loan
longer than you initially anticipate.

Again on the ARM programs, find out if there is
potential for any negative amortization (principal balance
possibly going up as time goes by as opposed to down).
This may be alarming if you have not been told upfront
about it or read it in your documents. You make think
that all this time you've been paying on your principal
as well as interest only to find that the great interest
rate you have is not even covering all the interest that
is accruing.

Remember these tips and get other help such as
the steps found in my ebook How To Get A Mortgage.
Get the best mortgage for you without costly

Link for ebook:

Diane St. James is a mortgage professional with over 23 years
experience. Her website http://www.abcmortgage.net exists to help
educate people about the mortgage world. She is the author of 2
e-books, and has been quoted in the WALL STREET JOURNAL,
on MSN.com, appeared on national cable new television CNBC, and was featured on a Cover Story for USA Today newspapers.