How to Shop for the Best Mortgage Rate.
Yes, a lower interest rate translates into a lower payment, but there are other costs you have to consider when borrowing money, including points, origination fees, and discount points. Read more to learn how to get the best mortgage rate.
What Costs Should I Ask About?
The cost of borrowing depends on how long you intend to keep the loan and the costs to obtain the loan. A loan with a higher interest rate with lower payments may be cheaper if you intend to pay it off early. Just because you are taking out a 30- or 15-year mortgage doesn’t mean you will keep that loan for the entire term. According to national statistics, most mortgages are paid off within 7-10 years when the home is sold or refinanced.
Once this concept is understood, the focus will shift to shopping for the best loan and not just the lowest Interest rate. In the end, the best loan is defined as the loan that provides you with the maximum benefit based on your specific needs.
How to Shop for The “Best” Rate?
The “best” rate is defined as the lowest rate available, based on your loan parameters, at the time you will be financing your home. The “best rate” is not the same, or even lower, than your “Uncle John” received yesterday. There are a lot of hypotheticals in that concept, but they are important to pay attention to.
Mortgage rates differ based on the terms of the loan (variable, fixed, time, etc.) and property type(condo, single-family, etc.). Rates can also change daily, typically only incrementally, plus or minus 0.125%. You usually won't see rates increase by 1-2% under normal circumstances.
“But, ABC Mortgage is marketing a lower interest rate!”
You should be aware that interest rate advertisements on the internet, television, and print can be outdated, and oftentimes misleading. Many of these advertisements will try to grab your attention by featuring 15-year terms with attractive interest rates or 30-year terms with points or origination fees. Always be sure to read the fine print to know what the entire offer is.
Find a Broker or Lender You Trust
To sum this all up, as long as you’re dealing with reputable lenders or brokers, interest rates should not vary greatly if comparing on the same day. The right lender/broker should be available to answer your questions throughout the process, and they should provide you easy to understand options so you can determine what makes the most sense for you. They should help you get the home you have your eyes on without last-minute changes that can cost you more or “blow up” the deal.
Interest rate is undoubtedly important, but a competent and honest mortgage lender is priceless.
BONUS TIP: Dealing with a mortgage broker versus a mortgage lender does not mean you will be paying higher fees. Mortgage brokers, in many cases, are more competitive, offer more options, and most importantly, provide personalized service.
