Consider this: Many people spend more time researching a new vehicle than they do researching their mortgage loans. Part of this is because buyers get lulled into thinking interest rates are the only consideration they must worry about when they apply for a mortgage. In many cases, when buying a home or refinancing, it is tempting to immediately seek out the lowest interest rates and accept that loan. However, this may not be the best way to determine the best loan. It is important to understand how to compare mortgage offers.
Understanding interest rates
One of the most commonly misunderstood factors of a mortgage loan is the interest rate. While it seems straightforward, mortgage loan interest rates may vary as much as a full percentage point depending on what charges are being included in the mortgage rate. Lenders may charge a premium for locking in a specific rate, for an originators fee or for application fees. While not all lenders will do this, before you accept an interest rate at face value, find out what other loan fees are includes in the rate.
Most closing costs are fixed
Many borrowers do not realize that there are some specific closing costs that are fixed. Fees such as credit reports, appraisals and even home inspections are probably nearly identical regardless of who handles the mortgage. However, fees such as application fees, attorney fees and even funding fees can vary greatly between lenders. Comparing these non-fixed costs can save hundreds of dollars in out of pocket closing costs.
Some loan fees cannot be negotiated
It is important to remember there are fees that must be paid that are typically not negotiable. For example, fees charged by local authorities to record a new mortgage and deed, fees for Personal Mortgage Insurance (PMI) and tax fees. These loan fees can be identified easily on a good faith estimate which a lender is required to provide to ever borrower within three (3) business days of applying for a mortgage loan.
Borrowers must be smart about comparing mortgage loans. Comparison shopping can help show the differences in interest rates, closing costs and overall loan fees. Remember to carefully review any good faith estimate but before you get to that stage, make sure the lender fully explains basic interest rates, what’s included in the rate, total closing costs and what loan fees you are required to pay.