Why you should compare mortgages
Comparing mortgage rates and features by shopping around will allow you to find the best deal. A mortgage, whether for a new purchase, refinancing, or home equity, is a purchase that costs you money... just like a car or other big ticket item. So...the price, terms, or other amenities are negotiable. You will want to compare costs and features of your mortgage. Taking the time to Shop, compare, and negotiate should save you thousands of dollars.
Obtain Quotes from Several Mortgage Lenders
Mortgages are provided by different types of lenders-- mortgage companies, banks, loan instutions, and credit unions. Lenders will quote you different fees and overall prices, so you should compare several mortgage lenders to ensure you are get the lowest price and best features. Another option is to obtain your home loan from a mortgage broker. Mortgage brokers arrange the loan instead of lending the money directly to you. Or, in short, they find a mortgage lender for you.
Brokers have access to many lenders, that means a broader selection of loan types and terms to choose from. Brokers generally work with several different lenders, but there's no guarantee that they wll find the best deal, especially if they did not sign a contract to to act as your agent. So, just as you would compare direct mortgage lenders, you should contact more than one broker, if you choose to use one.
Regarding Mortgage Brokers
It can be difficult to tell, initially, if you are dealing with a broker, or directly with a lender. Adding to the confusion, some banks and lending institutions are both lenders and brokers. Make sure to ask if a broker is involved in processing your loan application. This is important because brokers are paid a fee for that is be separate, and in addition to fees that the lender will charge. Compensation for a broker may be in the form of fees, points, a slightly higher interest rate, or a combination of several of these. Be sure to ask your broker how they will be compensated...then you can compare fees. And, don't forget to negotiate.
Comparing mortgage rates
Record the pricing information from several lenders or brokers. You'll need to know what down payment you can afford, and discover the various fees and costs related to the loan. Just knowing the monthly payment or the interest rate isn't nough to make a valid comparison. You'll need details. Here's a rundown of the kinds of information you'll need:Interest Rates
- Obtain a list of the lender's current mortgage interest rates
- Note whether the rate is fixed or adjustable.
- If the rate is adjustable, get the details on how much the rate can go up, and whether it can also goes down
- Ask for rates in "APR" form. The APR accounts for more than just the interest rate, and includes points, fees, and other charges that you will be need to pay.
Points are simply fees paid to the lender that are linked to the interest rate. Typically, the more points you pay, the lower the rate will be.
- Check websites and newspapers for current information about rates and points
- Request that points to be quoted as a dollar amounts, rather than just a "number of points". It makes comparisons much easier.
Mortgages requires a number of fees, including loan origination fees, broker fees, transaction fees, settlement fees, and closing costs. Each mortgage lender will provide an estimate of its fees. And...many of these fees are negotiable. Some fees are related to the loan application (application and appraisal fees), while others are paid at closing. Also, in specific cases, you may borrow money to pay these fees...remember that borrowing to pay the fees will increase the amount of your loan. There are "no cost" loans available, but "no cost" is a bit of a misnomer, in that a "no cost" loan will carry a higher interest rate.
- Ask for the what each fee covers. Several different items may be rolled into one fee.
- Get the details for any fee you don't understand.
- Challenge mortgage fees that are negotiable
Down Payments and Private Mortgage Insurance
Most lenders require either 20 percent of the home.s purchase price as a down payment if you want to avoid carrying Private Mortgage Insurance. If your down payment is less than twenty percent, your lender will probably ask you to purchase private mortgage insurance (PMI). PMI protects the lender if the home purchaser fails to pay and goes into default.
- Inquire about the down payment requirements for a down payment, including what's needed verify that your funds are available.
- Ask your lender about special programs it may offer. Down payment requirements for government backed loans, like FHA or VA loans, are usually lower.
- Ask what the total cost of the insurance will be.
- Ask for the total monthly payment, including PMI costs
Push for the Best Deal
After you understand what each lender has to offer, negotiate for the best deal.Pricing, fees, and interest rates can change every day, either due to market conditions, or the lenders choice on how much "margin" they want to make on the loan. Because of this, lenders often quote different prices for the same loan to different customers, even if those customers have the same credit ratings and available down payments.
Ask your lender or broker to write down the costs and fees related to your mortgage. Then, line by line, ask them to waive or reduce their fees. You can also push for a lower rate or reduction in points. Just as you would when buying a car, watch that the lender is not reducing one fee while raising another, or shifting points and interest rates as you negotiate fees. It's your money, so don't be afraid to ask them to beat their current offer, or to compete with another lender.
After you are happy with the terms negotiated, get a written "lock in" from your mortgage lender. This lock-in needs to include the interest rate, the expiration date for the lock-in, as well as the number of points you'll pay. Keep in mind that your lender may charge a fee may be locking in your loan rate. The lock-in fee might be refundable at closing, so be sure to ask. A Lock-in protects you from increasing rates during loan prrocessing. If rates go down, however, you might end up with a less attractive rate. Should that happen, re-negotiate with your lender. The only thing you have at risk is your lock-in fee.
Remember: Shop Around, Compare Mortgage Rates, and Negotiate!
When selecting mortgages, remember that shopping around allows you to compare costs and terms, and negotiate for a better deal. Newspapers and the Internet are great places to start shopping for your mortgage. Information on current interest rates, points, and terms for lenders are easily compared. Interest rates, points, and terms change every day, so you'll want to check frequently when you compare mortgages.