The cheapest loans arent necessarily those with the lowest interest rates. The bottom line fact is that the cheapest loans are the ones that ultimately cost you the least to pay back. If you keep that fact in mind as you hunt for the cheapest loans you will save yourself a great deal of money.
The various features you must look at closely for each lender and loan option, when hunting the cheapest loans, include the annual percentage rate, referred to commonly as APR.
The other features that are important as well are the additional fees that go along with getting loans, and the points. You have to consider the cost of compensating your loan broker, credit insurance, the term of the loan, whether there is any balloon payment, and any prepayment charge or penalty.
The APR actually combines some of these features. It is the combination of the interest rate on the particular loan, the points involved and any other fees. The higher the APR is on the loan, the less likely it is to be one of the cheapest loans. Dont assume that, however. Look at all the features and read all the fine print.
What we mean by points are the charges you pay to the financial institution for lending you the money. Each point represents one percent of the loan amount. You might pay points up front as cash, or they might be figured into the bottom line that you are financing. The cheapest loans may be those with the lowest points. Some have no points at all.
Even the cheapest loans have additional fees. A good faith estimate should be part of your loan information and this will spell out the multiple fees involved in closing your cheapest loans deal.
The most common loan fees are for appraisals in the case of home loans, credit reports, the services of a tax professional, a determination of flood problems, a title search, abstract and examination, a premium paid on the title insurance, settlement fees, any attorneys fees, inspections for termites and other pets, any surveying that is needed, recording fees, and taxes.
The lender is paid additional fees. Knowing what these are and comparing them is part of making sure you find the cheapest loans. You might have to pay the lender for underwriting the loan, processing it, preparation of documents and a courier. If you engage the services of a mortgage broker youll have to pay her or him as well.
Not every lender charges for all of these services. Some loans, cheapest or otherwise, may not require all of these services. Again, this is an area in which you must do some comparison shopping. Some brokers are paid by the lender rather than the borrower.
That cost could, however, get passed on to you, the borrower, in points or term. Do ask what your lender is paying the broker if you dont see it written anywhere. When trying to locate the charge in your Good Faith Estimate it is generally called YPS (Yield Spread Premium) or SPR (servicing release premium.)