How To Compare Mortgage Quotes and the Trade-Off Between Interest Rates & Fees
Deciding how to finance the purchase of your home is one of the most significant decisions a homeowner will ever make. Most mortgages last from 15 years to 30 years, and are one of the most extended financial commitments that most people will make in their lifetime. When looking for a mortgage lender, it is important to consider more than just the interest rate.
Find Quotes to Compare
You can find mortgage quotes from several different types of lenders, such as commercial banks, mortgage companies, and credit unions. Different lenders will offer different loan terms, fees, and interest rates, so it’s in your best interest to find out what is available.
You can also contact a mortgage broker to help you source loan products. A mortgage broker can help you to find a lender, but they don’t lend money directly. If you don’t have a trusted broker that you have worked with before, it is wise to contact several different ones to find the best fit for you.
Understand the Bigger Picture
It is essential to get the full financial picture of any loan that you are considering. Knowing only the amount of the monthly repayment or the interest rate is not enough. Ask the lender for information about the approved loan amount, the terms of the loan, and also which type of loan you are being quoted for. By having all of the information available to hand, comparisons between lenders will be a lot easier to make.
Know Your Rates
Another thing to consider is the interest rate of the mortgage product. Interest rates can differ significantly depending on your creditworthiness and the length of the loan. A higher interest rate can cause your loan repayments to be considerably higher over the course of your loan. It is essential to understand the difference between fixed and adjustable interest rates. Fixed interest rate mortgages stay at the same interest rate for the duration of the loan, and are particularly beneficial if the rate is initially low. Adjustable-rate mortgages change dependent on the market.
The loan’s annual percentage rate (APR) is arguably the most crucial aspect of the rate to consider. The APR combines the interest rate and also any mortgage points, closing fees, and any other loan costs you might have, into a yearly rate. By using the APR, you are better able to understand the overall cost of your loan. It is worth noting that oftentimes when a loan product is advertised at an unusually low-interest rate, fees and costs tend to be higher.
Consider Discount Points
Discount points are a way of lowering your interest rate at closing. This can be a useful way for homeowners to ‘buy’ their rate down. For some homeowners, buying points is an attractive option, as by paying more up front, in exchange for a lower rate, they can save money over the long term. When you are comparing mortgage products and quotes, find out whether buying points is the only way to receive the advertised rate.
Understand the Fees
Finalizing the purchase of a home loan involves many fees at the closing table, from underwriting and broker fees, to loan origination and other miscellaneous closing costs. As mandated by federal law, lenders must give you an estimation of these loan costs before you close on the loan. There are options to roll closing fees into your loan in some instances, but by doing this, your total costs typically rise over the long term. Don’t be afraid to ask your lender about the fees that are included on your loan estimation. Knowledgable mortgage brokers and lenders are more than happy to explain the loan product in detail, and are often willing to negotiate