In this article
- Below Are 10 Tips That Can Help You Through The Mortgage Rate Shopping Experience And Ideally Save You Tons Of Cash.
- 1. Advertised Mortgage Rates Typically Include Points And Rely On Best Case Scenario Factors
- 2. The Lowest Mortgage Rate May Not Be The Most Ideal Option
- 3. Compare The Costs Of The Mortgage Rate Being Advertised.
- 4. Consider Different Types Of Home Loans Other Than The 30-Year Fixed
- 5. Watch Out For Bad Recommendations That Don’t Suit Your Individual Needs
- 6. Consider Brokers, Credit Unions, Online Lenders, And Banks
- 7. Research The Mortgage Companies Before You Apply
- 8. Be Mindful Of Your Credit Scores
- 9. Lock Your Rate Early On, So It Doesn’t Go Up
- 10. Be Patient, and Don’t panic
Searching for the best mortgage rates? Well, you’ve probably heard that mortgage rates have skyrocketed meaning they are not as attractive as they used to be, so shopping around for the lowest mortgage rates is now a common activity that homeowners must engage in.
You must be prepared to invest a considerable amount of your time and effort to get your hands on a low rate, despite the current state of the global economy.
However, the truth of the matter is that rates are not usually as low as the mortgage company initially claims, which can be both stressful and even problematic for your home loan application.
But instead of feeling hopeless, let’s try to find solutions that can help you get a better deal on your home loan.
There are various ways you can secure a super low mortgage rate on your home loan, although a good amount of time and effort is required on your part. After all, you are not simply shopping for a washing microwave or TV.
If you are not ready to put in the work, you may not be pleased with the rate you finally get. However, if you are up to the task, the savings you get can make the little effort you put in well worth it.
The best piece of advice you can follow when looking for a good mortgage deal is to shop around because you can’t be certain that the rate you have is good without comparing it to others,
Many current and future homeowners simply get one quote, usually from a referral or local real estate agent, and then proceed to cry later for not shopping around when they had the chance.
Below Are 10 Tips That Can Help You Through The Mortgage Rate Shopping Experience And Ideally Save You Tons Of Cash.
1. Advertised Mortgage Rates Typically Include Points And Rely On Best Case Scenario Factors
You’ve definitely come across mortgage rates advertisements on TV, or hear them on radio, or seen them on the internet. Well, most of these ads indicate that you need to pay mortgage points.
So, for instance if your home loan is $200,000 and the rate is 3.5% with one point, you have to deposit at least $2,000 to enjoy this rate. On top of this, you may also need to pay some additional lender fees as well. It’s crucial to understand that you will not always be comparing oranges with oranges if you focus on the rate alone.
For instance, lenders have different charges and fees for their home loans, so clearly the rate isn’t the only parameter you should focus on when shopping for a good mortgage.
Moreover, these advertised mortgage rates often cover best case scenarios, meaning that they assume applicants will be able to make a 20% down payment and have a 760+ credit score.
They also expect the property to be a single-family house that you will use as your main home.
If you don’t meet any of the above criteria, you can expect to get a significantly higher rate than advertised.
Are you showing the mortgage company that you deserve the best rate, or simply demanding it because you feel entitled to it?
Individuals that present the lowest risk to mortgage companies have the best chance of getting a super low mortgage rate.
2. The Lowest Mortgage Rate May Not Be The Most Ideal Option
Most mortgage applicants go for the lowest interest rates available, but at what cost?
As mentioned above, the lowest rate may require discounts points and/or attract high fees, which will push the APR higher and make the overall credit facility less desirable.
You should take some time to understand what is being charged for the rate given to properly determine if you are getting a good deal. You should also consider the interest rate vs. APR to accurately determine the cost of the credit facility over the entire repayment duration.
Lenders are required to show the APR next to the interest rate so that you know how much the loan actually costs. But, APR has its downsides, but it’s still a useful metric to consider.
For instance, it may be in your best interest to go with a rate of 4.725% instead of 4.5% if the latter option has no charges, while the former costs say $6,000.
Paying a lower rate gives you time to recoup the costs, and you could refinance or sell before savings are finally realized.
3. Compare The Costs Of The Mortgage Rate Being Advertised.
Now, the next step is to compare the costs of getting the mortgage at the par rate, as opposed to paying to buy down the rate.
For instance, you might be better off taking a slightly higher rate to cover all your closing costs, especially if you don’t plan on staying in the home very long or have limited funds to work with.
If you don’t plan to sustain the mortgage for more than a year or two, why pay for various closing costs and points from your own pocket?
It may be in your best interest to take a slightly higher rate and pay a slightly higher amount each month, and then you can refinance or sell.
In contrast, if you plan to stay permanently in the house and can get a super low rate, it may be wiser to pay the points and costs out of pocket to lower your interest rate even further.
After all, you’ll enjoy lower monthly installments over many years, which will save you lots of money in interest.
4. Consider Different Types Of Home Loans Other Than The 30-Year Fixed
When comparing costs, you should also consider the different types of home loans available, like the 15-year vs. 30-year. If you are looking for a small loan amount, you might be able to get a super low rate and make very affordably monthly payments.
For instance, if you currently have a 30-year mortgage at 4%, lowering the rate to 2.5% on a 15-year fixed won’t increase your monthly payment significantly. You’ll also save a lot of money on interest and own the house much sooner.
As already noted, if you plan to stay in the house for just a couple of years, you can look at lower-rate mortgages, like the 5/1 ARM, which offer much lower rates than the 30-year fixed.
If you’ll be out of the house before the loan terms ever change, why pay the costs for a 30-year fixed?
Many homeowners go for 30-year fixed home loans, then end up refinanced a year or two later.
5. Watch Out For Bad Recommendations That Don’t Suit Your Individual Needs
Don’t over leverage yourself just because the mortgage broker or bank says you’ll be able to pay off the loan in no time. Most home loans in the market are quite costly.
Of course, paying off your mortgage early has its upsides, but you may be better off using that money for other things.
They may suggest something that isn’t appropriate for your specific situation, so do your due-diligence before taking any definitive steps.
You should understand what type of loan facility will work best for you, rather than blindly following the advice of some third-party or bank representative.
Many times, homeowners get pitched an adjustable-rate plan when you’re searching for a fixed mortgage plan, simply because the lower rate and monthly payment sound appealing.
You may also be advised to go for a 30-year fixed loan even though you plan to relocate in just a few years.
6. Consider Brokers, Credit Unions, Online Lenders, And Banks
I advise homeowners to shop around extensively and compare as many lenders as possible. This means comparing rates online, as well as contacting multiple mortgage companies, credit unions, and banks. You could even compare quotes from different mortgage brokers while you are at it.
If you quit at just one or two quotes, you may end up missing out on a huge opportunity. To put it simply, don’t invest most of your time shopping for new household appliances. There is a much larger elephant in the room that deserves all of your time, attention and energy.
The repayment duration for your loan will probably be 30 years, so the choice you make today can affect your life for the next 30 years, or more. It’s important that you put in the necessary work in order to get a good deal.
7. Research The Mortgage Companies Before You Apply
Shopping around will involve you doing some due-diligence of the mortgage companies you are considering.
When comparing interest rates, it’s important to do some homework on the companies to ensure you’re dealing with trustworthy and approved lenders that can offer you the loan you are looking for.
A low rate is amazing, but only if the application is successful! There are lenders that consistently fund mortgages, and there are others that will take you on a never-ending ride only to finally give some excuse about why they will not be approving your mortgage loan application because they don’t know what they are doing.
Luckily, there are many mortgage company reviews on the internet that should make this vetting process easy. Remember, the outcomes will vary from loan to loan, as no two borrowers or loans are the same.
You could go without doing any research on these companies if you are refinancing, but if it’s a purchase, you’ll want to make sure that you are working with a reputable and reliable company that will not let you down.
Otherwise, a seemingly good deal could end up being the worst deal of your life.
8. Be Mindful Of Your Credit Scores
You should know that shopping around may involve using multiple credit pulls. This won’t damage your credit score as long as you shop within a specific duration of time. To put it simply, it’s okay to apply more than once, especially if you are likely to get a lower mortgage rate.
Also, do not apply for any other loan types before or during shopping for a mortgage. The last thing you want is for a trivial credit card application to negatively affect your chances of approval.
Moreover, avoid using your credit card all the time and racking up huge debt, as this too can negatively impact your credit score.
It’s advisable to pay for cash for items and/or avoid using your credit cards entirely until the loan funds have been disbursed.
Without a doubt, your credit score can impact your mortgage rate significantly, and it’s one of the few things that you can control, so take charge of it as soon as possible. Your credit score is definitely something that you should not take lightly when looking for a mortgage.
If your credit score is not that good, you may want to do something about it before applying for a home loan.
It could mean the difference between a good rate and a bad rate, which translates to a lot of money in the long run.
9. Lock Your Rate Early On, So It Doesn’t Go Up
This is very important. Just because you found a good rate for a mortgage doesn’t mean that it’s yours. You still have to lock the rate and get the necessary confirmation as soon as possible. Without this, all you have is mere quotes and nothing more. This means that the rate can change at any time.
Rates change all the time, just like stocks on Wall Street. Timing is vital at this stage. If you are happy with a certain rate, why not lock it in?
The loan needs to be funded. So, if you’re dealing with an unscrupulous lender who promises a low rate, but cannot deliver and avail the funds in time, the rate is basically useless.
Remember to watch out for bait and switch lenders who promise you one thing and offer something completely different when it’s time to close the deal.
All in all, you should understand that you can negotiate during the process.
Don’t shy away from asking for a lower rate if you think you can get one; there’s always room to get a better deal with mortgage rates!
10. Be Patient, and Don’t panic
Last but not least, take your time. You should not rush to make this important decision without doing some research and talking with your family, friends and whoever else that may have your best interests at heart.
If a company is trying to run your credit report right out of the gate, or is aggressively asking for your sensitive information, tell them you’re just looking for a tentative quote.
Never feel obligated to go with a certain lender for any reason whatsoever. You should feel comfortable with the broker or bank in question, and if you don’t, don’t be afraid to look for another option. Trust your instincts.
Also, check mortgage rates occasionally to get a better idea of what’s on offer in the market. Nobody can predict the future, but if you are proactive, you can have an edge over the competition.
Typically, mortgage rates are highest in spring and lowest in December if all factors remain equal.
And, there is no reason to panic because of rising interest rates and rush to lock in a low rate now. Rates could easily reduce over the course of the year. This commonly occurs in the stock market when people freak out and sell their stocks when the market is down, only for them to bounce back afterwards.
In conclusion, make sure to look at the bigger picture – while your objective is to get the lowest rate possible, you have to consider the lender’s ability to fund your mortgage, your plans with the mortgage/property and the closing costs associated with the loan.