Researching current mortgage interest rates is a great first step to take when you are thinking about applying for a new home loan, and this holds true whether you are applying for a purchase loan, a refinance loan or a home equity loan. Many lenders and mortgage brokers publish their best rates online for easy comparison, but others require you to submit a loan application before you receive a rate quote. Your rate is one of the most critical aspects of your loan request, and you may be wondering what are the best steps to take if you want to get a great deal on your mortgage.
Understand What Advertised Rates Are
Many home loan applicants have had the unfortunate experience of thinking that the advertised lowest rate would apply to their loan request and finding out later that the rate they can qualify for is actually much higher. This is because lenders assess their risk for extending a loan to you, and they issue a rate that is line with their risk. One of the factors that affect their level of risk is your credit rating. Therefore, if you have a lower credit rating, you can expect your actual rate to be higher than the advertised lowest interest rate possible. Some lenders even require you to have a 780 or higher credit score to qualify for the lowest rate possible.
How Points Impact Mortgage Rates
When you research interest rates online, you likely will notice that there are two columns. One column shows the interest rate, and the other column shows the points. The points are paid directly to the lender as a cost for issuing the loan. You can essentially buy down the rate by paying more points. Some lenders show a lower advertised rate to generate more interest in their programs, but they may charge higher points as well. A point is equivalent to one percent of the loan amount, and this is a direct fee that you will be responsible for at closing. If you want the lowest rate possible, be prepared to pay at least a point or two in fees. Keep in mind that the points can also be negative, and these are loans that pay you money at closing rather than vice versa.
Why Interest Rates Matter
You may be wondering why there is so much emphasis on interest rates. After all, many rates only vary by a quarter or a half a point at best. When you are looking at a loan amount of several hundred thousand dollars or more and a lengthy loan term that extends for decades, the total cost to you of even a quarter percent difference in the rate can be significant. This also impacts your loan amount, how quickly debt can be reduced and more. Finding the lowest interest rate should be a goal for any home loan applicant, but the low rate needs to be balanced with the points paid.
If you are looking for the lowest rate possible, it is wise to first learn what your credit rating is. Then, you can call different lenders to get a rate quote that is more specific to your financial standing. This can take more time and effort, but it will yield the best overall results.