Comparing mortgage rates is often the most time-consuming part of mortgage shopping. Mortgage fees include more than just interest rates, so make sure to check the details of all mortgage-related fees when shopping around for mortgage rates. Remember to take into account the quoted rate, points, annual percentage rate, closing costs, and other possible fees.
What are mortgage points?
Mortgage points are up-front fees that are paid to the lender at closing. Each point is equal to one percent of the loan amount. Points are charged in efforts to lower the rate of interest on the loan. You have the ability to choose among different rates and points combinations for the same loan product. So, if comparing rates offered by different lenders, be sure to compare the associated points as well.
What are closing costs?
Closing costs typically consist of loan related fees, such as lender application fees, credit report, title and escrow charges, government recording, appraisal, and transfer charges, and can add thousands of dollars to the cost of your loan, depending on your mortgage broker or lender. When comparing lenders specifically, compare loan-related fees, since other fees are typical independent of the lender.
What to Look for When Comparing Mortgage Lenders
Complete your loan scenario with all lenders at the same interest rate and the same lock-in period. From there, the comparison of these mortgage lenders will be based on the same rate and lock-in period. Most lenders can offer you a variety of rate and point combinations for the same loan product, but to keep it simple when making comparisons, leave the scenarios the same across the board. Then add up the total lender fees for each rate including points and loan related fees. Look at the sum of all loan-related fees and voila! You’ve successfully compared mortgage rates.
How to Get the Best Mortgage Rate
What’s a fixed rate mortgage?
A fixed-rate mortgage locks the interest rate that gets paid over the life of your loan. The total monthly payment is based on the final loan amount, interest rate chose, and loan term. Other costs such as insurance and property taxes can fluctuate.
What’s an adjustable rate mortgage (ARM)?
With an adjustable rate mortgage, interest rates fluctuate over the life of the loan. There’s an introductory period of 3,5,7 or 10 years, seven years during which your interest rate remains constant. After that period, the rate changes based on the interest rate index chosen by the bank and is added to the fixed margin that is set upfront by the bank. While this mortgage might look good because they offer lower introductory rates, be sure that you’re comfortable with the possibility that your mortgage payment might go up.
Should I pay for points?
Paying for points makes sense if you plan to keep the loan for a long time. However, the average homeowner stays in their home for approximately nine years, and if that’s the case then the upfront costs can outweigh the interest rate savings over time. If you have a set time frame that you know you will be in the home then you can take the cost savings of paying the points and not paying to see what makes sense for you.
Do I qualify for any special programs?
Certain situations allow for you to qualify for special mortgage programs.
These loans or programs include:
- VA loans. If you or your spouse are active military or veterans, it’s possible to qualify for a veteran affairs loan. These loans have low, or no, down payments and offer protections if you fall behind on your mortgage payments.
- FHA loans. Federal Housing Administration loans permit low down payments, but they’re open to most U.S. residents. They require as little as 3.5% down and are more forgiving of low credit scores than traditional lending programs. FHA loans are often popular with first-time homebuyers.
- USDA loans. If you are buying in a rural area, the United States Department of Agriculture mortgage program might give you a low down payment mortgage (or no down payment) to help cover closing costs. USDA loans are also more lenient if you fall behind on your payments.
In additional to VA, FHA, & USDA loans, individual states might offer special programs that can help with payments.
How much should I put down for my down payment?
A lower down payment generally leads to higher interest rates, and more money spent overall. If you can afford to put 20% of your home’s purchase price as the down payment, do it. If you can’t afford it, many lenders will take as low as 5%, 3.5%, or even 1% of the purchase price, depending on qualifying factors.
Make sure you shop around for the best mortgage rates before making any commitments. A little research can go a long way when making a purchase as large as a home, so don’t rush it!