Mortgage interest rates vary by lender — how to compare offers
Want to save money on your monthly mortgage payment and over the long haul? Comparison-shopping is the key. (iStock)
Shopping around for your mortgage loan is critical — at least, if you want to save cash.
According to Freddie Mac, getting just a few extra quotes for your mortgage loan can save you anywhere from thousands of dollars over the long haul. It also means a lower monthly payment and a more affordable house to secure your financial goals.
Why does shopping around for a lower interest rate work, exactly? It all boils down to mortgage lenders. Every lender offers home buyers different rates and payment terms and unless you contact several at once, you’re not able to see the full range of offerings you might qualify for.
Here’s how John Graff, CEO and broker at Ashby & Graff Real Estate puts it: “Think about it this way: If you were thinking about buying a pair of shoes online, you would most likely check one or two different online retailers to see who has the best price, who offers free shipping and if there are any coupons available. If you’re going to go through all that trouble to save $20 bucks on shoes, then it probably makes sense to do it for your mortgage where you can save thousands and even tens of thousands.”
Setting the stage
Freddie Mac’s research shows that getting just two mortgage interest rate quotes can save you, but for the absolute best deal, you should aim for five quotes.
To do this, you’ll need to contact at least a few mortgage lenders (your personal bank or credit union included) or use a tool like Credible to get pre-approved for several quotes at once.
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From there, pick a few lenders you like, and fill out their full application — ideally on the same day, if possible. This ensures your offers are based on the same market conditions. Find out what kind of personalized rates you qualify for within minutes by filling out your information online for free.
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Once you file an application, the lender will give you a loan estimate statement within a few days. This is what you’ll use to compare offers and choose the best one.
Using loan estimates to compare mortgage offers
The loan estimates you receive will break down the estimated costs of each lender’s offer, including the monthly payment, the interest rate, the APR, your closing costs and more.
“The best way to compare mortgage products is to first make sure you are comparing apples to apples by comparing similar offerings, not a 30-year fixed-rate at one lender and a 5/1 adjustable-rate at another,” Graff said. “Once you’re sure you are comparing similar products, it’s easiest to look at the APR. The APR includes the rate the lender is charging you plus certain fees that come with getting a mortgage. In the past, unscrupulous lenders would quote an attractive annual interest rate only to shock the borrowers with a bunch of high-priced fees. Comparing the APR on similar loan products is the best and easiest way for you to feel confident when shopping for a mortgage.”
You should also look at the individual fees a lender is charging you — specifically the origination and underwriting fees. There is also a “comparisons” section that details the loan’s cost over the first five years, as well as how much interest and principal you will have paid by that point. This information also provides a nice barometer for comparison.
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Make loan shopping easier
Using a rate-shopping tool like Credible can help streamline the mortgage quote process, as can using a mortgage broker.
A mortgage broker can help serve as a personal shopper, assisting in the comparison of rates across the spectrum of lenders.
Be sure to have a good mortgage calculator on hand before beginning your mortgage search, too. This can help you better visualize your options, as well as the monthly and long-term costs they each come with.