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Frequently Asked Questions

How long should my mortgage term be?

Mortgages typically have a term of 15 years or 30 years -- other durations may be available depending on the lender.

A mortgage with a shorter term tends to come with higher monthly payments, but you’ll end up paying less interest over the life of the loan. A longer term mortgage (such as a 30-year mortgage) will have smaller monthly payments while you’ll pay more in total interest.

The main factors that will go into the decision of choosing a mortgage term include income, total cost, effect on other financial goals and whether or not you plan to stay in this home.

What does it mean to refinance?

Refinancing entails replacing your mortgage with a new mortgage or loan -- a strategy used by many borrowers to obtain better terms on their debt obligations.

Homeowners often refinance when borrowing rates fall significantly. For example, your mortgage is locked in at 6 percent interest rate. But, rates have fallen to roughly 4 percent -- meaning that it may be wise move to refinance at the lower rate. You’ll end up paying less interest over the life of the loan and possibly reduce the size of your monthly mortgage payments.

As with any loan, borrowers must go through an application process when they try to refinance. Lenders will evaluate incomes, home values, home equity, creditworthiness and more.

What are discount points?

When you apply for a mortgage, the lender may offer discount points for purchase. When you buy discount points, the lender offers a lower interest rate in exchange for an upfront payment.

One discount point is equivalent to one percent of the mortgage amount -- paid as part of the closing costs (payments for discount points are not deducted from the mortgage principal). Normally, one discount point will reduce the mortgage rate by 0.125 percent to 0.25 percent.

Discount points are a wise financial investment if you plan to keep the mortgage until the end, because the total interest paid will be reduced significantly. If you don’t plan to hold the mortgage for long, you don’t reap the full benefits of having a lower interest rate.

Why does my credit score matter?

Like most loans and lines of credit, mortgages require that borrowers have a solid credit history -- evidence that borrowers have the ability to repay their debt. A high credit score, produced by the data on your credit reports, signals that you’ve managed credit responsibly and you’re likely to qualify for more loans.

Additionally, your credit score will help a lender determine the interest rate on your mortgage. Borrowers with better credit scores tend to qualify for lower mortgage rates.

Before you apply for a mortgage, it is important to review your credit history and take the time to improve your credit score. In addition to increasing your chances of qualifying for a mortgage, a good credit score could mean better rates.