Lowest Mortgage loan Rates
Buying a home is a huge financial commitment. Finding the right mortgage (and how to get the best mortgage rate) can be a confusing process — especially for first-time homebuyers. Comparison shopping is the key to getting the best deal, and you’ll want to ask yourself, “How much house can I afford?” before getting too far into the process.
Here are six important questions to consider when deciding which mortgage is right for you:
1. Should I get a fixed- or adjustable-rate mortgage?
Mortgages generally come in two forms: fixed or adjustable rate. Fixed-rate mortgages lock you into a consistent interest rate that you’ll pay over the life of the loan. The part of your mortgage payment that goes toward principal plus interest remains constant throughout the loan term, though insurance, property taxes and other costs may fluctuate.
The interest rate on an adjustable-rate mortgage fluctuates over the life of the loan. An ARM usually begins with an introductory period of 10, seven, five or even one year, during which your interest rate holds steady. After that, your rate changes based on an interest rate index chosen by the bank.
ARMs look good to a lot of homebuyers because they usually offer lower introductory rates. But remember, your rate could go up after your introductory period, so be sure you’re comfortable with the chance your monthly mortgage payment could rise substantially in the future. As you try to figure out how to get the best mortgage rate, Use the terms of the loan to calculate what your payment might look like in different rate scenarios.
2. Should I pay for points?
A point is an upfront fee — 1% of the total mortgage amount — paid to lower the ongoing interest rate by a fixed amount, usually 0.125%. For example, if you take out a $200, 000 loan at 4.25% interest, you might be able to pay a $2, 000 fee to reduce the rate to 4.125%.
Paying for points makes sense if you plan to keep the loan for a long time, but since the average homeowner stays in his or her house for about nine years, the upfront costs often outweigh interest rate savings over time.
Alternatively, there are negative points. It’s the opposite of paying points: A lender reduces its fees in exchange for a higher ongoing interest rate. It’s tempting to reduce your upfront fees, but the additional interest you pay over the life of the loan can be significant. Carefully consider your short-term savings and your long-term costs before taking negative points.
3. How much should I expect to pay in closing costs?
Closing costs usually amount to about 3% of the purchase price of your home and are paid at the time you close, or finalize, the purchase of a house. Closing costs are made up of a variety of fees charged by lenders, including underwriting and processing charges, title insurance fees and appraisal costs, among others. You’re allowed to shop around for lower fees in some cases, and the Loan Estimate form will tell you which ones those are. Shopping for the right lender is a good way to find the best mortgage rate, and save money on a mortgage and associated fees.