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Shopping for a Mortgage Just Got Easier

Posted by  on Apr 14, 2010
 

Shopping for the best mortgage rate was never fun. It could be complicated--the lender with the lowest mortgage rate often had the highest loan fees. Little boogers like pre-payment penalties could bite you later on if you didn't see them or plan for them. And for those who aren't math geniuses (most people), the different combinations of rates, points (paid in exchange for a lower rate), and fees made it very difficult to winnow out the best deal. Lenders threw in confusing charges, such as processing and courier fees, to increase their income on a loan. Negotiating these "garbage" fees distracted applicants from the bottom line. And while burrowing through the maze of disclosures, boilerplate, and riders, you realized that what the bigger print giveth, the little print taketh away.

Shopping for a Mortgage: Let the Fun Begin

Starting on January 1, 2010, mortgage shopping got a whole lot easier, and yes, even fun. Imagine--every lender has to use the same comprehensive, three-page disclosure form that puts every important feature of the loan, from the rate, total costs, and yes, even the boogers--front and center. In big, fat print. You, the borrower, are in the driver's seat. Just request a batch of mortgage quotes (you can even do this online), and compare straight across the board.

Shopping for a Mortgage: Three Tips

  • Get your mortgage rate quotes all at once. A rate quote today can't be compared to one given tomorrow. Lenders can no longer put out a rate sheet for the week. Their profit margins are too small these days to absorb market changes, and mortgage-backed securities prices change like stock prices do. Your average rate quote today is only good for about four hours.
  • Focus on the rate and the adjusted origination charge. The adjusted origination is the total of all the fees controlled by the lender. If two loans have the same annual percentage rate (APR), choose the one with the lowest adjusted origination charge.
  • Keep in mind the limits of the APR calculation. The APR accounts for the interest rate and the adjusted origination charge and expresses it as a percentage. However, automatically choosing the loan with the lowest APR won't automatically give you the best mortgage rate. APRs can only be compared between identical loans--30-year fixed to 30-year fixed, 5/1 ARM to 5/1 ARM, etc. And APR calculations assume that you keep your loan for the full term--if you don't, a loan with a higher APR and lower costs might be the best mortgage for you.

Shopping for a Mortgage: You Win

Estimates in the past weren't necessarily accurate. Today, your disclosures have to match your actual closing costs, with some allowable variance. The deal that looked good at the beginning should look just as good at the end.

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