Some Tips for Comparing Interest Rates

One very important point of consideration when buying a home with a mortgage is the interest rate. These rates vary greatly from one lender to another. However, it’s easy to get lost in a sea of advertised rates if you don’t know what to look for and which among the advertised elements you should consider.

The thing is, there is more to what is being promised that should be examined in careful detail. In this article, we hope to provide you with some handy tips that would hopefully prove helpful the next time you go hunting for the right lender.

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Break the jargon

The best defense against misjudgment is to learn the skeleton of the trade. You don’t need to learn everything. You just need to know how things work.

Break the jargon. Learn whatever you can about mortgage interest rates and their purpose (it’s actually pretty basic).

What are their types? Should you go for an adjustable rate mortgage or a fixed-rate one? How does an interest rate differ from the annual percentage rate? What are the types of mortgages based on how the interest is spread throughout the amortization period? How are rates calculated anyway and what are the factors that influence it?

These are the most fundamental questions that you need answered when toiling over the mortgage interest question.

After you get around the basics, you should already have a pretty good grasp of the nature of rates, hopefully enough to make your own unguided comparison.

It’s not just the rates

The interest rate is just one part of the whole picture. You also need to learn about other costs that are calculated along with the rates and add up to your total loan amount. These terms include the Annual Percentage Rate (APR) as previously mentioned, and mortgage points.

The APR is a broader measure of your borrowing cost. It reflects your interest rate along with other costs such as the mortgage broker fees, discount fees, and other closing costs expressed as a percentage.

Discount points, also called mortgage points, are fees which you pay to the lender during close in exchange for a reduced interest rate. This strategy is also what is commonly known in the mortgage industry as buying down a rate. To buy down a single percentage point is going to cost you one percent of the principal amount of the loan.

When comparing interest rates, ask not only for the rate or the Annual Percentage Rate. You also need to probe on the associated costs of closing to get a more accurate picture of how much the whole deal would cost you on the closing table.

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Be suspicious

There’s no such thing as free lunch. Any lender offering a suspiciously low interest rate should automatically be subject to skepticism. Mostly, in these cases, the lenders are charging you more on some other hidden costs.

There are various sites online that will give you access to consumer reviews. These will give you a good insight as the previous consumers’ experiences with a particular lender’s services. You may also check with the Better Business Bureau for compliments and complaints or further customer reviews.

You may also visit the Nationwide Multistate Licensing System Consumer Access site which to confirm that the financial-services company or professional with whom you wish to conduct business with is authorized to operate in your state.

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