Finding the best mortgage rates begins with determining which type of loan fits your situation. Start with basics such as loan program types and terms, and then move to specifics such as lenders and mortgage details. You will see just by the advertised interest rates on many bank websites that mortgage rates will often vary depending on the loan product.
Loan Programs and Mortgage Rates
There is a strong connection between the type of loan you wish to pursue and the amount of interest rate you will pay on your mortgage. For example, the initial fixed rate on an adjustable rate mortgage (ARM) might be as low as 2.5%, but those terms are only good for that initial time period. Depending upon the type of ARM you get, you might have those interest rates for anywhere from 1-5 years. After that initial period expires, you will be required to pay the mortgage rate at that current time. This is a risk that you take when you apply for an ARM, but it can save you money on interest if you know that you will be ending your loan agreement (i.e. moving or selling) before that initial time period has ended.
On the other hand, if you seek a conventional 30-year fixed mortgage, your interest rates will generally always be higher than those of ARMs, but you will know exactly the amount you will be paying each month and do not have to worry about your payments later fluctuating. This program can be good for your situation if it is unknown, or likely that you will be remaining in that home for more than 5 years. If you have a large income cushion each month you might opt for a 15-year mortgage, meaning that you get a lower interest rate, but will pay slightly higher monthly payments because the funds are amortized over a 15-year period.
Make sure that you research each option carefully and how it can benefit or put at risk your financial and living arrangement futures. It does not hurt to speak with a few professionals about your financial situation if you are unsure of which option might be best for you.
Finding the Best Mortgage Rate
Once you have decided which loan program you want to pursue, it is time to take steps to find the best one possible that will provide you with the lowest interest rate and least restrictions or additions (private mortgage insurance (PMI), penalties on early payments, points, processing charges, and more).
• Ask several lenders for the best interest rate they can give you on the program you have determined is best for you. Make sure that they include all extra fees (processing or origination fees) in their quotes so there are no hidden surprises. Remember we list current mortgage rates here daily on our blog from several of America’s top services.
• Find out about terms for locking in interest rates. Some lenders will raise your interest rates in conjunction with asking for a longer period of time with which to lock-in that rate. Other lenders will use a float-down approach that lets you re-lock your rates if the overall interest rates decline during your lock-in period. Just make sure that whatever lock-in length you agree to that it will work with your closing date (try to give yourself a few days of breathing room).
Finding the best home mortgage rates begins with choosing a type of home loan. From there it is time to move on to loan details, and find a lender who will give you clear information on the mortgage up-front. Then it can be time to lock-in those rates and move forward with your dream home purchase.