Expert Guidance on Deed of Trust Law

A Deed of Trust is also called a mortgage. In Utah, you will nearly always see a “deed of trust”, but most people still call them mortgages or a mortgage. Qualifying for a mortgage is an important first step in making a home or business purchase. In fact, your ability to qualify for a loan (and the terms for which you are eligible) will decide how much house you can afford. Issues such as your interest rate and whether you can become prequalified for a mortgage loan are extremely important matters, especially for first-time buyers. Determining whether you can afford a mortgage involves a calculation which takes into account your earnings, expenses, employment (and employability), and credit history. Lenders take your credit score in particular very seriously. While it may seem complicated and unnecessary, it’s very important to know what you can afford before you even start shopping for a home.

Understanding Interest Rates, Points, and Fees

A combination of interest rates, mortgage points, and fees will largely determine the overall cost and monthly payments of a mortgage. By preapplying for a mortgage and thus learning about your eligibility, you will get a better handle on what you can afford before you start shopping for homes. Below is a brief description of each of these factors:

Interest Rates – Interest tend to change on a daily basis and may differ from one lender to the next, while the rate you get will be limited by your credit worthiness. A skilled lender will help you lock in a good rate by understanding the general health of the market.
Mortgage Points – You can often lower your interest rate by paying a fee — or “mortgage point” — in a one-time lump sum payment.
Fees – There are a number of different fees your lender will charge for a mortgage. These often include an application fee; loan origination fee; appraisal fee; home inspection fee; FHA, VA, and RHS fees; and a flood determination fee.

Choosing Between Mortgage Points and a Higher Interest Rate

If you want to lock in a lower interest rate and have the means to pay additional cash upfront, you might want to consider purchasing what are called mortgage points. One mortgage point generally equals 1 percent of the total mortage amount. If you are applying for a $100,000 mortgage, for instance, you can lower your mortgage by $1,000 if you purchase one point. What you decide will depend on your unique situation, means, and needs. Questions to ask yourself include the following:

How long do you plan to stay in the home? – The longer you stay in the home, the more benefit you will get out of paying upfront for a lower rate.
Are you expecting to break even? – As with the first question, make sure you will be in the house long enough to benefit from the cost of the point(s).
Do you have enough cash to pay for the point(s) at closing? – Make sure you do the math and determine your ability to pay for mortgage points.

The Risks of Adjustable Rate Mortgages

Adjustable rate mortgages (ARMs) were very popular in the years immediately prior to the 2008 financial crisis, as loans were easy to get but often had risky terms. ARM loans fell out of favor after the financial crisis, but remain an option for many. Before you sign on the dotted line, however, make sure you understand the substantial risks involved:

Rising Monthly Payments – No matter how low the monthly payments may seem at first, keep in mind that they could rise by a steep margin (sometimes doubling or even tripling).
Negative Amortization – Some ARMs have a so-called “payment-option” in which you have the option of just paying the minimum each month; but the unpaid interest will be added to the principal and you may end up owing more than you originally borrowed.
Prepayment Penalties – Some ARMs and other mortgages have prepayment penalties, which would kick in if you try to refinance during the penalty period.
Declining Home Prices – You could also suffer negative amortization if the value of your home falls to the point where it’s worth less than what you owe on the mortgage.
Refinancing – You likely will not be able to refinance a loan if the balance is higher than your home’s value.