Even though mortgage rates have climbed from the record lows
seen a little over a year ago, they are still low on a historical
Source: Flickr user Mark Moz.
However, that doesn't mean home buyers should simply accept
the first mortgage rate that is offered. Even a small difference
in rates could mean saving big bucks down the road. For example,
the difference between a 4% and a 4.1% rate on a 30-year,
$300,000 mortgage is more than $6,200. With a little effort, you
could end up with the best mortgage rates available to you.
1. Know where you stand
Before you even start shopping for a mortgage, it's best to
know exactly how your credit looks and what that means in terms
of mortgage rates.
One useful website is
, which provides subscribers with their FICO credit score, the
same score most lenders consider. Members also have access to the
current average mortgage rates for consumers with their score.
The company's Score Watch product does cost $14.95 per month, but
it could be well worth paying for while you have use for it.
You'll also get a "score simulator" that can tell you the impact
of certain changes in your score, like paying down your credit
cards or opening a new account.
For example, it tells me that if my FICO score is 730, I
should be able to obtain a 30-year mortgage with a 4.038%
interest rate. This is useful information, as it gives you a
starting point for mortgage shopping.
2. Shop around
The biggest mistake many mortgage shoppers make is simply
using a lender recommended by their real estate agent and
accepting the first mortgage offer.
Investigate all of your options. Get mortgage quotes from
national banks, regional banks, local banks, credit unions, and
direct lenders. Just be sure to do so within a 14-day window so
that these checks will only count as one inquiry on your credit.
When you ask a lender for a pre-approval, they will run your
credit. A "hard inquiry" shows up on your credit and can
adversely affect your score by a few points. However, so long as
you make all of your applications within those 14 days, these
inquiries will only show up as a single inquiry for scoring
3. Opt for a shorter lock period
One way to squeeze a little bit more out of your mortgage deal
is to accept a shorter rate lock.
Most lenders offer various periods of time during which your
interest rate can be "locked in," with the options generally
ranging from 30 to 90 days. Basically, this allows you to close
on your mortgage in the future while guaranteeing you today's
interest rates. This can be handy when interest rates are rising
or when rates fall suddenly and you want to take advantage.
However, a longer rate lock can cost significantly more either
in terms of the rate itself or in higher "points." According to
one Bank of America mortgage agent, choosing a 60-day lock over a
30-day lock can cost an additional point, or 1% of the loan
The best course here is to wait to lock in your rate until
you've already agreed to purchase a home and then choose the
shortest closing period you can reasonably accommodate.
4. Don't forget about fees and points
The "best" mortgage rates don't always have the lowest
advertised rates. You need to consider the fees and points you'll
pay in order to determine whether you're getting the best
For instance, after running a quick search on
for mortgage rates in my area, I see that the top three loans
offered near me all come with a 4% interest rate with no points.
However, the lender fees range from $347 to $1,162. Factoring
this into the cost of the loan produces the annual percentage
rate, or APR, which is the best representation of the true
amount you're paying to borrow money.
So, even though these loans have the same interest rate, the
APR varies from 4.012% to 4.040%. And, as we know, that little
difference adds up over the life of the loan.
5. Make a larger down payment
Another way to obtain the best mortgage rates is to pay more
of the purchase price up front.
A larger down payment means lower risk in the eyes of a
lender. It basically lets them know that you're more likely to
pay your bills on time, as you're putting more of your own money
at risk. For example, changing the down payment on my Zillow
search from 20% to 40% lowers the best APR offer from 4.012% to
Again, while that's not a big difference, it will add up in
the long run. Remember that a higher down payment means you're
borrowing less money to begin with -- which also means lower
These small discounts are worth the effort
None of these tips by themselves will make a large difference
in your mortgage rate, but if you shop around and combine all of
these tactics, you can realize serious savings. If you ask me,
saving thousands of dollars is well worth the effort to find the
best mortgage rates.
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