Home Financing

Home Financing

o Check the real estate or business sections in the newspaper for
information on current interest rates. Call several lenders for
rates and terms based on the type of mortgage you want. o When
buying a newly constructed home, compare the interest rate and
terms offered through the builder's sales office with those offered
by other lending institutions.

o When interest rates go down, you might save money by
refinancing, but you probably should not refinance unless the new
interest rate will be at least two percentage points below the rate
you're paying currently.

o For an adjustable rate mortgage, or "ARM," find out the "cap" or
the maximum interest rate that can be charged during the life of
the loan. Ask how often the rate might change and what
determines the rate change.

o Get a complete list of "closing" or "settlement" costs and find
out which costs will be refunded if your loan is not
approved.

o Be wary of financing that is based on "negative amortization."
While the payments might be lower than in other types of loan
agreements, they're not enough to cover the monthly interest
charges. The portion of interest that is left unpaid is added to
the principal, which means that each month, the borrower pays
interest on a higher amount than before. With negative
amortization, the debt actually keeps increasing rather than
decreasing. You could end up owing a lot of money at the end of
the loan or losing your home.

Home Equity Credit Lines

o Although a home equity credit line might allow you to take tax
deductions you could not take with other types of loans, your home
will be at risk if you cannot make the monthly payments. o Some
questions to ask when comparing home equity loan offers: - How
large a credit line can be extended?

- How long is the term of the loan?

- What is the minimum monthly payment? Is there a maximum? -What
is the annual percentage rate?

- If the interest rate "floats," or is adjustable, how much can it
increase at one time? Is there a maximum rate?

- Are there any annual fees or transaction fees?

Reverse Mortgages

o If you own your home, a reverse mortgage loan will pay you in
monthly advances or through a line of credit. It lets you
convert your equity into cash which you can use for any purpose,
while retaining your ownership in your home. Before you sign, be
sure you understand all the terms and conditions.

o Interest rates on this type of loan might be higher and are
charged on a compound basis. Application fees, points and
closing costs also might be higher than other types of loans.
Interest rates are not deductible on your income taxes until you
repay the loan in full. There will be less equity for you and your
heirs in the future.

For more information or to file a complaint, contact:

Department of Housing and Urban Development
Office of Single Family Housing
451 Seventh Street, S.W., Room 9282
Washington, D.C. 20410
(202) 708-3175

State and Local Consumer Protection Offices
(See the list beginning on page 70.)


Selecting a Financial Institution

Carefully select a financial institution by comparing the terms and
prices of all of the services you need.

o Shop around. Do not do business with the first institution that
seems willing to do business with you.

o Check the front door to see if the institution displays a
government logo indicating that it is insured Federally.
Generally, if the institution is insured Federally, an individual
is covered for up to $100,000 in deposits if the institution fails.