The mortgage interest rate you pay is going to be one of the biggest factors in your monthly payment (second, of course, to your loan amount). Depending on the loan amount and interest rate, even saving 0.25% can equate to $20,000 or more in savings over the life of the loan.
That's why it's so important that you spend a little time and focus on finding the best mortgage rates. And it can be daunting - but the easiest thing you can do is simply shop around.
Just education yourself on things like origination fees, lender charges, and more, then compare apples-to-apples loan options.
With that in mind, here's where you can find the best mortgage rates and lenders (and seriously - don't just take our word for it, shop around)!
Best Mortgage Rates
Check out our list of the best online mortgage lenders here to get started on your rate hunt. We recommend using Credible Mortgage* as a good starting point, because unlike other comparison tools, you can do everything online (and you won't get bombarded with 100+ phone calls). Check them out here >>
What Determines Mortgage Rates?
A lot goes into the final mortgage rate that you’ll get from a lender.
Some people try to create a relation between 30-year fixed rates and the 10-year Treasury bond. That isn’t so straightforward. As the 10-year yield went down this year, the 30-year mortgage went up.
Instead of looking at economic factors that affect mortgage rates, we’ll discuss them in terms of individual rates.
When a lender is determining a mortgage rate, they look at several factors specific to the borrower. As reported by consumerfinance.gov, these include:
- Credit scores: As with any kind of borrowing, credit scores are king. The higher your score, the lower your rates, and the more lending opportunities that will come your way.
- Home location: The state and neighborhood where the house is located also play a role in the kind of loan you might get. Remember, with real estate, it’s all about location, location, location.
- Home price and loan amount: If you’re trying to buy more home than you can afford, approval of the loan is unlikely. Once you’ve found an affordable home, the home price plus loan fees minus your down payment is the amount the loan will be approved for.
- Down payment: The greater the down payment you have, the higher your chances of getting a loan approval and the less interest you’ll pay. Your monthly note will be less as well.
- Loan term: This is the duration of your loan. A 30-year loan will have lower monthly payments than a 15-year loan at the same rate. But you’ll also pay more in interest.
- Interest rate type: fixed or adjustable.
- Loan type: There are several loan types, and not everyone qualifies for them. These include traditional, FHA, USDA, and VA loans.
Another important factor not mentioned by consumerfinance.gov is your income-to-debt ratio. This ratio looks at how much your income is vs. how much is being paid to debt. It’s a quick way to determine if you are able to take on any additional debt. Most lenders want to see a ratio of 0.40 or lower.
Which Fees Are Involved?
Fees vary by lender. Some of the most common fees include:
- Closing: These are usually some form of processing and underwriting fees. Expect a few thousand dollars in cost.
- Points: This is a method for reducing your interest rate. It’s an upfront cost that pays for itself over time. You can discuss with your lender how much time that may involve. If you are going to be in the home for less than the time it takes for the points to pay off, you might want to avoid points.
- Origination: This is similar to an application fee.
- Title and escrow: This is for conducting title search and related insurance. Escrow fees are related to holding earnest money.
- Credit report: This is a small charge for pulling your credit report.
- Inspection: This is paid by you as one of the first fees. It is often a few hundred dollars.
- Mortgage insurance: This usually rolls into your monthly escrow payment.
- Broker: If you are working with a real estate broker, they will take a percentage fee based on the final selling price.
Fixed vs. Adjustable Rates
30-year, fixed-rate mortgages allow you to spread your loan out over a longer period of time, which reduces your monthly payment. For this convenience, you’ll pay more interest over the life of the loan.
If you want to pay less in interest but don’t want the interest rate to change, a 15-year, fixed-rate mortgage is your best option. These mortgages will have a higher monthly payment because you are cutting the loan term in half compared to a 30-year mortgage. A 15-year fixed also generally approves for a lower amount (i.e., a smaller loan).
Note that paying a 30-year, fixed-rate mortgage like a 15-year (double the monthly payment), assuming both have the same interest rate, works out to about the same savings in interest as if you had a 15-year, fixed-rate mortgage.
Finally, there is the adjustable-rate mortgage, or ARM. ARMs come with different terms and their rates change during the term. There is usually a fixed-rate period, but thereafter, the ARM can begin adjusting its rate up or down. This will cause your monthly payment to fluctuate. If rates rise significantly, so will your monthly payment.
How to Know If You Are Getting a Good Deal?
Like any purchase, shopping different lenders will give you a good idea of the rate you’re likely to receive. Besides the rate, also factor in other terms such as the points offering, if the lender is easy to deal with, and what kind of reputation the lender has. Also, consider the various fees — you may be able to find a wide discrepancy between different lenders.
In the end, finding a good mortgage rate is simply a lot of time on the phone getting questions answered, submitting documents, and waiting on other people.
* Credible Operations, Inc. NMLS ID# 1681276, 318 Blackwell Street Ste 120A, Durham, NC 27701
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
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