You’ve seen the advertisements, get the calls from mortgage lenders, and hear friends and neighbors boast about their low mortgage rates. But how do you go about getting the best mortgage interest rate for yourself?
The best interest rate isn’t necessarily just the lowest rate — it’s the lowest rate you can get on the loan that fits your needs. You may see a five percent rate on a 15-year adjustable rate mortgage (ARM), but the payment amount for a short-term loan, not to mention the risk involved in an ARM, might not be right for you. A 30-year, fixed interest rate loan might be best for you, even though it will come with a slightly higher interest rate. More on Choosing a Mortgage Loan.
Once you know where you stand, do some research. Look at the interest rates on the type and term of loan that’s best for you. While researching, look at recent rate trends to get an idea of the direction in which interest rates are moving. Also, since key economic indicators also affect interest rates, start paying attention to the financial news.
Once you know your mortgage priorities and have an idea of where interest rates are (and where they’re heading), you can start calling lenders and brokers. Talk to several to find out their current mortgage interest rates, and see if points are included. Also find out how long their rate offers are valid. One lender may be offering a rate with a seven-day lock, while another may allow you to lock in the rate for 30 days. Once you reach a rate for the type of loan you want, lock in that rate. A lock is a promise to hold the rate made by the lender for a certain period of time. This way, should the rate go up, you will still get the rate you were quoted. Should You Pay Points on Mortgage Loans?
As you compare the various quotes you have solicited, be sure you’re comparing apples to apples. Comparing interest rates on 15-year ARMs with rates for 30-year fixed mortgages isn’t helpful.
A word of caution: When you are loan shopping, not all lenders you talk to will be quoting you a real rate. Some lenders will simply tell you anything to get you to fill out an application and start up a dialogue. Likewise, some advertisements on television or in newspapers have strings attached, in the fine print. As always, if something sounds too good to be true, it probably is.
When you do sit down with a lender, pay attention to the features of each type of loan, including points, interest rate, and other provisions. Once you reach a rate for the type of loan you want, lock it in.