Debt Consolidation

Shopping For Mortgage Loan Rates

Posted on: April 20, 2010
Written by:

When shopping for mortgage loan rates it is important to understand how to shop for rates. When calling for a mortgage rate, it is important to remember two things; how long to lock the rate and how many points a person wants to pay. Trusting a lender is very important and a person should start shopping for a lender who has been recommended or leader in the market, then branch out and research other lenders to compare rates and benefits. To start, let the lender know upfront what amount you are able to pay in points, and how long you prefer the loan should be. It is important to talk and compare loans with different lenders to ensure that the best possible rates can be applied.

A mortgage package consist of three factors:

  1. Interest Rate
  2. Points
  3. closing cost

Points are fees upfront paid to the lender at closing. Points are paid to decrease the rate of the loan. Some lenders will allow the consumer to choose the combination of points and payments to best fit their specific needs, within reason.

Closing costs are loan fees for items such as the title, escrow, and transfer charges. The cost can add thousands to the cost of the loan, these costs may catch first time home buyers off guard, it is important to get all the information first, to properly budget for these added expenses. After speaking to lenders, it is important to compare the various loan related fees and features, such as mortgage insurance payments, credit and cash requirements, and prepayment penalties. Also, compare lock-in periods to guarantee the interest rate and quote given. Typically, the longer the lock-in period increases the price of the loan, not up front but over the length of the mortgage. The lock-in period need to be long enough to allow for settlement. Compare interest rates on the same day as they change daily and even a couple of times a day.

Types of Mortgages

Rates depend of the type of mortgage a person gets. Below are different mortgage types available and terms to help make a knowledgeable decision:

  • Fixed- Rates that normally start out higher than other loans, but resulting lower than the national rates later.
  • Interest Only- Interest only loans that allows payment just on the interest of payment for a designated amount of time. This results in a smaller payment monthly and a lower first-rate. These are like to adjustable rate loans and when the interest only period ends, payment on the principle and loan will increase.
  • FHA - A federal loan from the Federal Housing Administration used for people who do not qualify for a standard mortgage.
  • VA - A loan for people who have served in the military.
  • USDA - A mortgage used in rural areas typically used by farmers or low-income people to buy property.
  • Adjustable - Rates that start low through the introductory period and bounce into the current interest rate.

A person is not obligated to accept an offer just by speaking to a lender and can walk away at any point while comparing rates. If a mortgage rate does not fit in your particular situation, wait for the rate that does.