How to Compare Mortgage Interest Rates

Many people going through the process of buying a home may think that the only thing they need to know about their mortgage interest rate is the monthly payment. Others believe it will take too much time to learn how to compare mortgage interest rates. Contrary to popular belief, it can be quick and easy to compare rates. Everyone wants to save money, but the purpose of shopping around for mortgage rates isn't that simple. Do you want to keep payments super low, regardless of the principal you are paying off? Do you have a significant down payment and need a loan for less than 30 years? Do you expect to be able to pay the loan off early and want a penalty-free loan? Follow these steps to ensure that you get the mortgage loan that best suits your needs.

Difficulty: Easy

Instructions

Keep Payments Low

1. Call your bank, credit union or mortgage broker or search for interest-only mortgage rates at their Web sites (see Resources).

2. Check out the Financial Calculators Web site with the following data points (see Resources):
   
   - Mortgage amount
   - Mortgage term
   - Interest rate
   - Mortgage start date

3. Input the data and click "Calculate."

4. Find your payment at the top of the chart.

5. Repeat with remaining loan terms that you've been offered.
   

Compare Loans Less Than 30 Years

6. Search for mortgage rates online or contact your bank or credit union for an adjustable-rate quote.

7. Download an amortization chart for Microsoft Excel:
   
   - Go to the Microsoft site (see Resources).
   - Choose "Templates" from the menu along the horizontal bar along the top.
   - Type "Mortgage Amortization" without quotes, then click "Go."
   - Click on the amortization schedule, then download.

8. Open your Excel spreadsheet amortization schedule and input the following data points:
   
   - Principal loan amount
   - Interest rate
   - Loan period
   - Loan start date

9. Repeat with the remainder of the interest rates that you've been offered.

Compare Traditional 30-Year Fixed Mortgages

10. Look for current rates for a traditional 30-year fixed mortgage.

11. Visit the amortization calculator with the following data points (see Resources):
    
    - Loan amount
    - Mortgage term in months or years
    - Interest rate
    - Loan start date

12. Input the data and click "Calculate." Find your payment in the field marked "Monthly Payments."

13. Repeat with additional rates you've been offered.

Tips & Warnings

• For a more detailed look at your loan terms, search for an amortization schedule with adjustable rates and principal payments.
• Rather than settling for a loan with longer terms, consider making 13 payments a year or adding an additional $100 per month. It can significantly reduce the length of your loan while still allowing you to qualify for a lower interest rate for longer.
• Don't forget to look at the bottom line-the amount of interest you'll pay over the life of the loan.
• Don't dismiss the power of your monthly payments-you can reduce your loan amount and adjust your amortization significantly with just one additional monthly payment or a few hundred additional dollars put toward principal.

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