How to shop for Mortgage Rates online

Posted by  on Apr 21, 2009

Conforming mortgage loans (not exceeding $417, 000 in most locations and limited to certain mortgage products) adhere to guidelines set by Freddie Mac (FRMC) or Fannie Mae (FNMA) and can be considered commodities. If your loan amount is within this limit, you have excellent credit, and you don't need any special treatment, the interest rate and fees could be your main considerations.

Mortgage Rates: Get Quality Quotes
First, an interest rate quote is pretty worthless without all the information. The total cost of the loan includes the interest charged as well as fees, service charges or points paid to the lender, and money paid to third parties such as appraisers and title insurers. One lender's 5.25% rate might be a better deal than another's 5% rate if the costs differ. Which leads us to APR--which is supposed to account for differences in fees but often doesn't really.

APR Is not Foolproof
The mortgage lender has to disclose the costs of the loan within three business days of your loan application date by delivering a Good Faith Estimate (GFE). Some lenders will give you one upfront, making it easier to shop. The federal Truth in Lending Act requires lenders to express the total cost of the loan as an APR, or Annual Percentage Rate. While not perfect, the APR does account for the lender fees and makes it easier to compare the same kind of loan between lenders. However, make sure the loans you are comparing are the same. An APR comparison between a 5/1 ARM and a 30 year fixed loan is worthless. APR doesn't consider the fact that few borrowers keep the loan the entire term. Examine both the APR and the Good Faith Estimate of the loans you are comparing. If the APRs are close, go for the loan with fewer upfront costs--if you don't keep the loan for the entire term you won't be paying for a benefit you didn't use.

Shop Quickly, Decide Slowly
Try to get your quotes the same day. Comparing an APR from one bank's Monday quote with another bank's Friday quote won't be useful. Rates used to change about once a week. However, financial markets are so volatile these days that it's common for rates to change several times daily! So try to get all your quotes quickly, and then go through them carefully. Narrow your search to two or three lenders with competitive rates, and then speak with an agent from each. You'll be discussing rather personal things with this person and trusting him or her with an important financing decision. Be sure your agent operates in your comfort zone.

It's Easy to Compare Interest Rate Quotes Online
The neighborhood bank isn't the only game in town anymore. It can take only minutes to get and compare mortgage loan quotes from lenders online. You input your requirements, the lenders give you their rates and terms, and then you can compare programs and choose your loan at home. Why wouldn't you shop and save when it's that easy?


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