When it comes time to buy or refinance a home, it makes sense to shop around to find the best deal. We look for the best deals when we shop for groceries, clothes and our cars, so it only makes sense when it comes to our mortgages, right? Just make sure you’re looking at the right price tag.
When customers come to me shopping for a mortgage, the most frequent question I’m asked is, “What’s your mortgage interest rate?” While the interest rate does contribute to the amount you’ll pay over the life of your loan, there are several other factors you should consider when choosing how and where to finance your home.
1. Closing Costs
When looking for the best mortgage lender, you’ll want to understand not only the mortgage interest rate, but the closing costs for your home loan. Closing costs are so important because they help determine the “APR” (Annual Percentage Rate), which is the true cost of the loan. Many mortgage lenders will advertise or post a really low interest rate, but may be waiting to disclose substantially high closing costs later.
Here’s how interest rate and closing costs are used together to calculate APR, so you can compare the true cost of your home loan:
|
Comparing APR
|
PA Bank 1
|
NY Bank 2
|
|
Loan Term
|
30 years
|
30 years
|
|
Loan Amount
|
$150,000
|
$150,000
|
|
Interest Rate
|
3.50%
|
3.75%
|
|
Closing Costs
|
$6,000
|
$1,000
|
|
APR
|
3.82%
|
3.80%
|
|
Monthly Payment
|
$701.00
|
$699.30
|
|
Total Interest
|
$102,183.50
|
$101,750.00
|
It’s smart to ask lenders about their costs, fees, rate options and turnaround time so you have all of the information to help you make an educated decision that works in your favor.
2. Interest Rate
It’s also important to look at the impact that the interest rate will truly have on your monthly payments. As we move forward in 2017 and beyond, we’re seeing interest rates creeping up and, in turn, an increase in online mortgage sites that try to tempt you with low interest rates. While it may be enticing to go with an online mortgage site that provides you with three or four boxed-up products, make sure that you’re actually buying the steak and not the sizzle. If they advertise lower rates, they may end up charging more in up-front closing costs or fees, and oftentimes the difference in the interest rate to your monthly payments are minimal. When it comes to rate, an increase of 0.5% on a 30-year, $100,000 mortgage is only $29 per month, which is less than $1 per day.
3. Local PA and NY Mortgage Expertise
There are valuable intangibles when choosing your lender that should play a factor as well. Things such as quality of service, industry and local expertise and other variables that don’t carry a price tag play a significant role in the relationship you have with your lender. Unfortunately, choosing your financing is not as simple as walking into a bank, choosing a mortgage, and driving home. There is a process which takes time and communication no matter what company you finance through, which means that reliability and quality customer care will do wonders to ease your stress level throughout the process.
And, with over 400 different configurations of mortgage options ranging from fixed to adjustable rates, with or without points, conventional or government programs, and so on, you will want reliable answers from someone who’s looking out for your best interests.
Another key detail will be to find out who will service your mortgage after closing. More than likely, at some point during the life of your loan, you will need to contact your lender. Maybe you’ll have questions about making additional payments or you’ll need escrow help. Wouldn’t it be best to speak with the same person you worked with in the first place? Some larger lenders and online mortgage sites tend to sell you the mortgage and then pass you off once the loan is created, making it difficult to work through future questions. It’s easy to look up the number or email address of your local community bank!
The truth is, there are so many factors that go into your mortgage that are just as important as the interest rate, so when you’re shopping for the best mortgage lenders, make sure that you consider the entire package.
