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As interest rates approach record lows, new mortgage applications are up sharply mostly due to an increase in home owners looking to refinance and lower their monthly mortgage payments. Many lenders are advertising interest rates that are below 5%. Others are advertising ‘low’ or ‘no closing costs’. With so many choices, how does one find the best mortgage deal?
Shopping for a mortgage on the internet can be very effective. However, if it is not done properly, it can be not only confusing, but lead to very poor results. Finding the lowest interest rate does not mean you have found the best deal. Analyzing Points, APR and the Good Faith Estimate are equally important. If these words don’t sound familiar to you, then you are not fully prepared to make a decision regarding which lender will get your business.
Let’s look at each briefly. A point is 1% of your loan amount. For example, 1 point on a $ 150,000 mortgage will cost $ 1500.
The money is paid to the lender in exchange for a lower interest rate. Paying points is generally optional. The more points you pay to the bank, the lower your interest rate will be. APR, which is expressed as a rate, is a way to compare offers by multiple lenders. Let’s assume one bank is offering 4.75% with 1 point and another bank is offering 4.875% with 0 points. In this example, it’s not very clear which lender really has the better deal. One bank has a lower rate while the other has lower fees. Asking for APR or Annual Percentage Rate will help make the comparison between these offers a little easier. Although not completely accurate, generally the lender with the lower APR is the one with the better deal
The GFE or Good Faith Estimate is probably the most important part of the mortgage application. It’s like the dealer sticker on a new car. The GFE is a list of all of the costs associated with your loan. It also includes information about your interest rate and monthly payment.
If you truly are looking for the best fixed rate mortgage, don’t overlook the GFE. Similar to the dealer sticker on a car, these costs are negotiable if you approach it the right way. If done properly, you can easily save another $ 1000 or more on your mortgage transaction.
Finding the cheapest mortgage rate involves looking beyond just the interest rate itself. These other factors will contribute to finding the best overall mortgage deal. The internet does make shopping easier, however, if you don’t understand what you are looking for and how to negotiate with your lender, you will never be able to get the best deal and the lowest payment.
Getting a mortgage is the biggest financial decision we make in a lifetime. Having knowledge of the process will ensure you are shopping correctly and efficiently so you can end up with the lowest monthly payment possible.