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Shopping For Mortgages: Mortgage Rate vs Mortgage Fees

Craig Berry
Craig BerryThe Mortgage Reports Contributor

What’s More Important? Mortgage Rates or Mortgage Fees?

Mortgage rates today are low. There’s no disputing it. And, low rates are great for the housing market.

Low mortgage rates help home buyers and home sellers; and, help homeowners looking to do a home loan refinance.

When mortgage rates are low, renters can become buyers more easily and low mortgage payments help to free up cash for investments and households savings.

There are lots of great deals in today’s low-rate environment. Before you take one, though, compare your offers with care. The loan that appears be your “best deal” may be worse than you expect, upon closer inspection.

Verify your new rate (Oct 14th, 2018)

Are You Getting Good Mortgage Advice?

These days, mortgages are a bit of a commodity.

Home loans are available via nearly every U.S. bank and more than 90% are based on government-provided boilerplate templates.

Mortgages are everywhere.

However, just because mortgages are the same wherever you go, that doesn’t mean that mortgage terms are the same, too.

Rates and fees will vary by lender, but so will your customizations.

For example, some lenders may offer piggyback loans (e.g.; the 80/10/10) for when you have 10 percent to put down; while others may only offer a one-loan to 90 percent loan-to-value (LTV) instead.

The choice to do a piggyback or a one-loan is yours, as the borrower. And, it’s one which can make a significant, long-term impact on your finances.

For this reason, when you’re shopping for a loan, it’s important to work with knowledgeable mortgage professionals who will help you find your best, most suitable loan.

If you’re making a small downpayment with a credit score is above 740, for example, and you plan to move within a few years, you may find the FHA mortgage program to be less expensive as compared to the Conventional 97 — even though the upfront costs are higher.

Any mortgage lender can help you do that math. A great mortgage lender, though, will help you understand your choices and their implications.

Among the best ways to find a great mortgage professional is to ask a friend who recently obtained a mortgage. Ask how your friend was treated, about the rates and fees they were charged, and whether or not the loan closed in the time frame promised.

Another great way to find a loan officer is to ask a real estate agent.

Real estate agents work with mortgage lenders every day. Many have a short list of “go-to lenders” that they know and trust.

Speak to at least two lenders when comparing your mortgage options and, ideally, as many as four.

Verify your new rate (Oct 14th, 2018)

Shopping For Mortgage Rates & Loan Costs

A great mortgage lender will help you understand your most suitable mortgage options.

For example, maybe you had plans to make a 20 percent down payment, but because you served in the military, you’re eligible to use your VA benefits for the VA Loan Guaranty Program.

VA mortgage rates typically beat conventional rates; and VA loans can be “assumed” by future buyers of your home.

When you work with a great lender, you’ll know you’ve selected from among the best, most-suitable loans available to you. Next, you can focus on loan terms.

Verify your new rate (Oct 14th, 2018)

What Is Your Mortgage Rate?

It’s common for mortgage applicants to want to “shop by rate”, and it’s okay to choose the loan with the lowest, most-attractive interest rate.

However, never shop on just interest rate alone.

Getting the lowest rate on the “wrong loan” can cost you far more in the long-run, and the lowest rate isn’t always best. Consider the obvious example of the 15-year fixed-rate mortgage.

Mortgage rates for 15-year mortgages are lower than mortgage rates for 30-year loans, historical, but because payments are compressed into fewer years, the monthly payment is much, much higher.

Similarly, it's unwise to shop by APR.

APR is a government calculation meant to show the long-term cost of mortgaging a home. However, it’s an easily manipulated figure which is often misleading to borrowers. Often, it’s best to ignore APR altogether.

A better way to look at mortgage rates, then, is to consider them within in the context of your loan’s other traits. Low rates and good terms is what you’re after — not one or the other.

How Much Are Closing Costs?

Getting the lowest rate on a mortgage doesn’t necessarily mean that you’re getting a “good deal”. Sometimes, getting the lowest rate can be the worst thing possible.

This is because, in general, lower mortgage rates are linked to higher fees.

You can get a low rate, in other words, but getting a low rate may not matter if you’re paying an inordinate amount of mortgage closing costs.

To be fair, there are some scenarios where paying “big fees” will make sense, but the typical homeowner moves or refinances in fewer than seven years, which means paying high costs is a gamble.

Your lender can help you understand the math and the trade-offs; and, don’t be afraid to ask. A great lender welcomes such questions and will take the time required to help you understand your choices.

Verify your new rate (Oct 14th, 2018)

Does This Loan Require Discount Points?

Mortgage discount points are a one-time fee used to “buy down” a mortgage rate.

The cost of one point equals one percent of your loan amount. Each point will typically lower mortgage your rate by 25 basis points (0.25%).

Discount points are optional and, for some borrowers, they’re a terrific idea — especially if you plan to keep your mortgage for a number of years.

The longer you keep your mortgage, the more likely you’ll recoup the discount point’s cost.

For example, if paying a discount point can lower your mortgage payment $100 per month, at some point, you will have saved more money on a monthly basis than you paid up-front for your “point”.

By contrast, for buyers who plan to move within a few years, paying discount points could be a waste. You may never save as much monthly as the points cost up-front at the date of closing.

Points can be tax-deductible, too, so talk with your lender about the benefits of paying points as compared to waiving them.

What Are Today’s Mortgage Rates?

With mortgage rates low, home sales are up and so is refinance activity nationwide. It’s an excellent time to shop for a loan, and lenders are ultra-competitive.

Take a look at today’s real mortgage rates now. Your social security number is not required to get started, and all quotes come with instant access to your live credit scores.

Verify your new rate (Oct 14th, 2018)