How to Shop for Mortgage Rates

Whether you're buying a home or refinancing an existing mortgage, the process can be confusing. ARMs, fixed rates, interest only and points are just a few of the terms you'll hear when discussing mortgage rates with a lender. When you shop rates, be sure you're comparing apples to apples.

Instructions

Difficulty: Moderately Easy

1. Familiarize yourself with the basic mortgage rate structures before you do any shopping. You need to understand the difference in a fixed rate mortgage and an adjustable rate mortgage, otherwise known as an ARM. There are many websites available with glossaries to help you understand basic terminology, and they also explain how these loans work.
2. Compare rates first on the Internet. There are a number of sites you can visit to shop and compare. Some, like Lendingtree.com, will give you rate quotes from several lenders at one time.
3. Contact a local mortgage lender for rate quotes, as well, starting with your own bank. They can often give existing customers good rates depending on their account relationships. Besides, if there's a problem down the road, it's good to be able to sit down and talk face to face with your lender.
4. Write down all the details of your comparison shopping. If you get quotes for ARM's, make note of the term. For example, note whether it's a 3/1 ARM or a 7/1 ARM. The two will have very different rates during the fixed rate period. They may also have different margins when the adjustable rate portion of the loan kicks in.
5. Ask about the fees required and possible points. You may think you've found a good rate but then discover in order to get that rate, there's a high minimum loan amount or points involved. Points are finance charges you pay up front in order to lower your rate going in. Unless you plan to keep your mortgage for at least 10 years, you could get burned if you have to pay any points.
6. Stick with reputable mortgage lenders and avoid fly by night brokers. Their only concern is to get you on their books in order to sell your mortgage to someone else, and nothing in their process is in your best interest.

Tips & Warnings

• Stay away from interest only loans. The low payment is attractive but it's easy to get buried in mortgage debt if you never pay your principle down. If your local housing market drops, it could spell disaster.