Shopping For Interest Rates

Shopping for a low mortgage interest rate is a good idea since the rate will directly impact your buying power – a higher rate will reduce buying power and a lower rate will increase it. For example, all other things being equal, the monthly payment on an $165,000, 30-year fixed-rate mortgage loan with an interest rate of 8 percent would be $1,210.71, while the payment on the same loan at 6 percent would be $989.26.

With so many mortgage products on the market and the barrage of rates lenders throw out in an effort to get your attention, it may be difficult to know whether the quotes you obtain are dependable. The best way to shop rates is to level the playing field and provide each lender with the same basic information:

Loan amount
Type of loan
Loan term
How many points you’re willing to pay
How long you want to lock in the rate

Because interest rates change daily, it’s also important to shop all lenders on the same day. Keep in mind that there are several variables that will determine the mortgage interest for which you will qualify including your credit score and the size of your down payment. Lenders will be able to provide you with an estimate – known as the Good Faith Estimate – that will itemize your loan costs including an interest rate. However, the final terms of the mortgage loan won’t be set until you are approved for financing.

Be on the lookout for lenders who undercut the competition by offering or advertising lowball or “teaser” rates that are well below what the market typically offers. These lenders can be found advertising virtually anywhere, on the Web, in newspapers or on the radio, and their super-low rates usually come with a catch. Some lenders may dodge the rate by attaching steep underwriting criteria, for example requiring that the borrower have an unusually high credit score. Or, in other cases the low rate may be offset by high upfront loan origination fees.

One quick way to shop interest rates is to enlist the services of a qualified and reputable mortgage professional that has access to the major lending markets. Nearly all lenders have access to the same interest rates and most of the financial variation you’ll encounter will be related to origination fees and other fees associated with the mortgage loan. Check with friends and your Realtor, they may be able to recommend a local lender.