Shop for a Loan
01. Shop and Compare
- Contact at least three to five different lenders or mortgage brokers. One of them is bound to offer the loan that's best for you.
- Compare loan programs and rates before you choose a loan. If you find a lender that offers a 7.00 percent rate when all the others charge one-half point more, you'll save $12,208 in interest over the life of a 30-year, $100,000 fixed-rate mortgage. Understanding the tradeoffs can help you choose a loan wisely.
- For tips on finding the best mortgage, see Home Mortgages?
02. Rates, Points and Fees
- Getting a low rate is important, but you may not benefit from it if you have to pay too many up-front points and other fees.
- Understand the relationship between points and rates. A point is just prepaid interest, and each point you pay equals one percent of your loan amount.
- If you get a $150,000 loan and pay two points, that's $3,000 in points. The more points you pay, the lower the rate you'll get.
- For more on costs, see Closing Costs and Fees.
03. How Long?
- If you plan on moving in a few years, consider an adjustable rate mortgage (ARM) since you may be able to sell the house before the rate gets too high.
- If you plan to stay longer, a fixed rate mortgage may be an attractive option because your rate stays fixed for the term of the loan.