If and when you shop your mortgage rate, it’s important to be thorough, and understand that you’re not always comparing apples to apples.
For example, lenders don’t charge the same amount of fees, so clearly rate isn’t the only thing you should look at when shopping.
Below are 10 tips aimed at helping you better navigate the shopping experience and ideally save some money.
1. Advertised mortgage rates generally include points
You know those mortgage rates you see on TV, hear about on the radio, and view online. Well, most of the time they require you to pay mortgage points.
So if your loan amount is $200,000, and the rate is 3.75% with 1 point, you have to pay $2,000 to get that rate. And there may also be additional lender fees on top of that.
2. The lowest rate may not be the best
Most shoppers are probably looking for the lowest interest rate, but at what cost? As noted above, the lowest rate may have steep fees and/or require discount points, which will push the APR higher and make the effective rate less desirable.
Be sure you know exactly what is being charged for the rate provided to accurately determine if it’s a good deal.
3. Compare the costs of the rate
Additionally, you need to compare the costs of doing the loan at the par rate, versus paying to buy down the rate. And it may be in your best interest to take a slightly higher rate to cover all your closing costs, especially if you’re cash-poor or simply don’t plan on staying in the home very long.
[See: No cost refinance]
4. Compare different loan types
When comparing pricing, you should also look at different loan types, such as a 30-year vs. 15-year. If it’s a small loan amount, you may be able to refinance to a lower rate and barely raise your monthly payment.
For example, if you’re currently in a 30-year loan at 6%, dropping the rate to 2.75% on a 15-year fixed won’t bump your mortgage payment up a whole lot. And you’ll save a ton in interest and own the home much sooner.
5. Watch out for bad recommendations
However, don’t overextend yourself just because the bank or broker says you’ll be able to pay off your mortgage in no time at all.
They may recommend something that isn’t really ideal for your situation, so do your research before shopping. You should have a good idea as to what program will work best for you, instead of blindly following the loan officer’s opinion.
6. Consider banks, online lenders, credit unions, and brokers
I always recommend that you shop around as much as possible. This means comparing rates online, calling your local bank, a credit union, and contacting a handful of mortgage brokers.
If you stop at just one or two quotes, you may miss out on a much better opportunity. Put simply, don’t spend more time shopping for your new couch or stainless-steel refrigerator.
7. Research the companies
Shopping around will require doing some homework about the companies in question. When comparing their rates, also do research about the companies to ensure you’re dealing with a legitimate, reliable lender.
There are plenty of accessible reviews online that should make this process pretty simple.
8. Mind your credit
Understand that shopping around may require multiple credit pulls. This shouldn’t hurt your credit so long as you shop within a certain period of time. In other words, it’s okay to apply more than once, especially if it leads to a lower mortgage rate.
More importantly, do not apply for any other types of loans before or while shopping for a mortgage. The last thing you’d want is for a meaningless credit card application to take you out of the running completely.
9. Lock your rate
This is a biggie. Just because you found a good rate, or were quoted a great rate doesn’t mean it’s yours. You still need to lock the rate (if you’re happy with it) and get the confirmation in writing.
The loan also needs to fund. So if you’re dealing with an unreliable lender who promises a rate, but can’t actually close the loan, the rate means absolutely nothing.
10. Be patient
Take your time. This isn’t a decision that should be taken lightly, so do your homework and consult with family, friends, co-workers, and whoever else may have your best interests in mind.
If a company is aggressively asking for your sensitive information, or trying to run your credit report right out of the gate, tell them you’re just looking for a ballpark quote. Don’t ever feel obligated to work with someone, especially if they’re pushy.