Dec. 11, 2018.
Here’s how to get a mortgage the easy way. Take some tips from your lender and use one or, better yet, all of these comparison strategies to snag a low rate.
What’s a mortgage interest rate?
Those pesky mortgage rates, they’re always changing.
Mortgage rates can fluctuate daily. Most of the time, you’ll find mortgage rates looking their lowest on Monday. Wednesday is the day when rates are most skittish, while Mondays are most stable. On Wednesdays, mortgage rates are more likely to fall or spike at random, making them more expensive.
Mortgage rates change because they’re dependent on a few different variables:
- Economic growth/recession.
- Economic indicators, including the Federal Funds Rate, the Consumer Price Index, and the Producer Price Index.
- Money supply, determined by the Federal Reserve.
- Forecasted inflation.
- Housing market conditions.
Mortgage rates are still historically low, but they’re expected to keep rising. Even though rates are going rise any day now, today’s rates are much, much lower than their peak of over 12 percent in the 1980s. Buying now before the next jump could give you the chance to lock in a lower rate that translates into a lower monthly mortgage payment. You’ll also get to start building your equity (your investment) as mortgage rates and housing prices increase.
What’s an APR?
Otherwise known as the Annual Percentage Rate, APR is the cost of credit broken down into an annual rate. The APR might be one of the most misunderstood numbers in the home loan process. If you haven’t taken the time to read and research, you’ve probably been interchanging your mortgage interest rate with its APR all along. Not to worry. This little mix-up is common since an APR and an interest rate can appear so similar.
It helps to compare your mortgage loan interest rate to its APR to see the difference:
- Your interest rate, or the annual cost of your loan, is calculated as a percentage. Your monthly mortgage payment will be based on this interest rate, and not the APR.
- The APR includes a loan’s interest rate, or its annual cost to the borrower, plus all those extra fees quoted with a loan program. Just like an interest rate, the APR will also be reflected in a percentage.
- Unlike an interest rate, the APR will have additional charges, including closing costs, mortgage insurance, loan origination fees, and discount points, lumped in.
The APR was created for consumer loans, and especially for mortgage loans, to help the average borrower better compare apples to apples on similar loans from different lenders using one set rate. The APR is that across-the-board rate that can be used to gauge your total cost of credit. Regulation Z of the Federal Truth-in-Lending Act requires a loan APR to be quoted in every consumer agreement.
How to get a mortgage: Use 4 lender-approved tips to grab a great rate
You might have heard shopping for a mortgage described as a negative experience. Not only can it get confusing, but many buyers run into lenders that make empty promises just to make a deal. Knowing what to look for can help you weed out the bad to get into a home loan you’re happy with.
Ask a loan officer, and they’ll tell you: These four strategies can make it easier to find the right rate:
1. Get picky.
It’s important to shop around to know that the rate you’re being quoted is competitive, but you might feel better if you compare lenders with experience. David Bakke, personal finance expert at Money Crashers, suggests comparison-shopping with at least three different trusted lenders, as rates and fees fluctuate.
While comparing, look for standout details: Does a lender honor their commitments? Do they provide exceptional customer service? Will they do what it takes to help you close on time? Do they know the right products and loan programs to fit your needs?
2. Get clear about what you want.
Depending on your finances, this “most important” factor will vary. You might be looking for the lowest possible monthly payment, or maybe you’re looking for the lowest money down. Help your loan officer help you. Nail down your nonnegotiables before you request a rate.
3. Get info on loan products, terms, and payments.
“Do your homework,” says David Reiss, Professor of Law and Academic Program Director of CUBE, The Center for Urban Business Entrepreneurship at Brooklyn Law School. “First of all, you need to understand all of the important loan terms such as principal, interest, fixed rate, ARM.” Reiss recommends getting a firm grasp on the basics before comparison-shopping lenders, choosing a loan type, comparing the total loan cost using APR, and ultimately deciding on a mortgage. “Then, when you commit to your mortgage, you’ll know you did a thorough job in identifying a good deal,” he says.
4. Get prequalified.
Requesting a mortgage rate quote is one thing, but getting prequalified for a home loan is the first official step you’ll take. You won’t know how much house you can afford until you prequalify for a mortgage. “You should always go through the prequalification process so you can find out your price range,” Bakke says.
Once you’re prequalified, your loan officer can walk you through your loan options that meet your “must have” criteria — whether it’s a low monthly payment, a low or no down payment, or a shorter loan term with a lower rate.
Request a mortgage rate the easy way: Get prequalified online.
Compare apples to apples to make a smart pick
You may have noticed by now that lenders charge their own fees, which can range widely. One lender may waive a fee but add on another. Another lender might quote an interest rate before adding or subtracting discount loan points that can change the total cost of a mortgage.
You’ll know you’re getting a good deal on a loan when you compare some common lender fees:
- Application
- Appraisal
- Courier
- Credit report
- Discount points
- Document prep
- Inspection
- Loan origination
- Notary
- Recording
- Processing
- Tax service
- Title search
- Underwriting
These loan fees may seem like small potatoes compared to the ever-important interest rate, but they’re a prime indicator you’ve found a good loan from a fair lender. All lenders are required to provide a free written fee estimate for any of the costs listed above. After you’ve applied for a mortgage, you can expect to receive a Loan Estimate (LE) from your lender. If you applied for more than one type of loan, an LE will be broken down for each loan type. The APR for a loan will be listed on page 3 of the LE, in the comparison section.
An APR is another comparison tool. An APR that’s noticeably higher than a loan’s interest rate may be a red flag that costs have been added.
Mortgage rates are rising, which makes accurately assessing and comparing more important than ever. If you’re short on time, LoanFly makes it easy. Input your info in the app, request your free quote, use our tips to make a strong pick, and get home in as few as 10 days.*
*Timeframe not typical. Not all loans will close in 10 days.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.