Your Next Mortgage and Home Equity

Posted by  on Aug 05, 2010

Growing home equity used to be an expected advantage of buying a home; although sinking home values in recent times have eroded home equity for many, buying a home when prices are low increases the likelihood of gaining home equity over time.

APR and LTV: The ABCs of Mortgage Shopping

Shopping mortgage rates is frequently the primary focus when seeking a new home loan or refinance mortgage, but home equity also impacts how much mortgages can cost:

  • APR and mortgage rates: The annual percentage rate (APR) is the total of all interest, closing costs, and lender fees expressed as an interest rate. The APR is a more accurate estimate of mortgage cost than mortgage rates alone. The APR must be clearly shown on Good Faith Estimates (GFEs) supplied by mortgage lenders.
  • Down payment and credit scores: The higher your down payment, the lower your LTV ratio. If you can put down at least 20% of your new home's purchase price, you're likely to qualify for lower mortgage rates. Mortgage lenders advertise their lowest available rates, but these rates are generally available to borrowers with excellent credit. The lower your credit scores, the higher APR you'll pay.
  • Paying points: Mortgage lenders may charge points; this is a fee calculated as a percentage of your mortgage amount. One point is equal to one percent of your loan amount. Paying points may help you secure a lower interest rate. If you have high credit scores, you'll pay less than borrowers with compromised credit. Points may be higher for mortgages above 80% LTV.

Borrowing the minimum amount you need increases home equity and can reduce your APR.


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