When you’re thinking about buying a house and you need a mortgage, you might want to do some comparison shopping. Why? Because you could save tens of thousands of dollars. That’s right -- imagine saving nearly $70,000 over the life of your loan.
Most of us will need a mortgage to buy a house (unless you have a lot of extra cash lying around). If rates are low, you’ll save thousands in mortgage interest over the life of the loan. Want to save even more? Don’t settle for just a quote from one mortgage lender. For the best rates and terms, contact 3 different mortgage lending institutes for quotes.
When you comparison shop for mortgages you could save as much as $69,186 over the life of the loan, according to a recent study. Imagine what you could do with all of the money you save! Purchase a new car, education, pay down debt, etc.
Let’s look at how you can find the best rate and lender. First, stay up-to-date on mortgage lending rates. A simple online search for “today’s mortgage rates” will give you a good idea of rates offered by various lenders.
Second, consider the type of mortgage loan that fits your needs. For example, fixed mortgages vs. ARM’s (see our financial guide for more info). Fixed mortgages maintain the same rate over the life of the loan (ex. 3.50% from day one to the end). ARM (Adjustable Rate Mortgages) may start out at a low rate (ex. 3.50%) but could increase at the end of the first year then each year thereafter. As rates adjust, you could find your monthly payment going from $1340.00/mo. to $1480.00/mo. AND the monthly interest could climb from $1000.00 to $1200.00. Suddenly you're paying an extra $140/mo. Talk to a lender about what type of mortgage fits your needs.
Third, look at the annual percentage rates (APR). APR is typically higher than the interest rate and includes the interest rate, mortgage broker fees, points (if there are any), among other charges. Different lenders may offer the same interest rate, but the APR could vary. A high APR will contribute to paying more over the life of your loan. Talk to your lender about how APR affects the type of loan you qualify for. The graphic we provided gives you 3 examples of how mortgage interest rates and APR’s vary among 3 different lenders.
Once you’ve found the right mortgage, best interest rate and APR, lock it in. This freezes the interest rate for a period of 30-60 days, possibly longer. If rates go up, you won’t have to worry about paying new inflated interest rates within the designated period. Talk to your lender about any fees associated with extending your rate lock. You may have to extend your closing date due to contract negotiations and that date could fall outside of the rate lock period. When you're serious about finding a home, talk to your lender, lock in your rate and find a home within 30-60 days and avoid paying higher rates on your mortgage.
Conclusion
When applying for a mortgage to buy a home, do your homework and you could end up saving $1000’s over the life of your loan. Talk to 3 different lenders and compare interest rates and APR. A difference of a half of a percentage may not sound like much, but it could mean a significant amount of money in your pocket over the life of your mortgage loan. When you find a home, ask your lender to lock in your rate to avoid being affected by growing interest rates. Time to start looking at mortgage rates and houses!
Our home finance guide includes everything you'd ever want to know about mortgages:
