How to Compare Mortgage Rates
Purchasing a home may be the largest investment in a person’s life. It is extremely important when looking for a home mortgage to understand how to compare mortgage rates, terms, conditions and clauses. Finding the right home may be the hard part, but just as important is selecting the right mortgage. Understanding how to compare competing mortgages can be the difference between enjoying a manageable monthly cash flow and spending too much for a home.
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Instructions
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Look at the interest rate for the mortgage loan. The interest rate is something that most homeowners look at first when it comes to comparing mortgages. In addition to looking at the numerical value of the interest rate, there are other factors such as whether or not it is an adjustable or a fixed rate mortgage. A fixed rate mortgage means the rate will remain constant throughout the life of the mortgage. Adjustable rates are not fixed, which means the rate can fluctuate during the term of the loan. Because there are several types of adjustable rate mortgages, be sure to fully understand what you're getting yourself into before selecting an adjustable rate mortgage.
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Review the points. Points are up-front interest payments. Therefore, if presented with two mortgage loans with the same interest rate with the only difference being that one loan has points and the other does not, the loan with the points is more expensive. In essence you are paying interest up front and during the term of the loan.
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Analyze the term of the loan. While a lower interest rate on a long-term loan may offer better monthly cash flow as compared to a short-term loan with a higher interest rate, be sure to look at the big picture. A slightly higher interest rate for a shorter period of time usually works out to be much cheaper than a low rate for a long period of time.
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Check the assumability clause. Some mortgage companies write assumable mortgages. In essence, this means that the mortgage can be assumed or transferred in the event of a home sale to the new owner. The new owner, however, must meet the financial underwriting requirements of the mortgage company. Having an assumable mortgage is attractive to investors looking to purchase homes as an investment property.
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Investigate the lending practices of the mortgage company. Before signing on the dotted line, investigate the lending practices of the mortgage company. If research shows that the mortgage company has been involved in shady dealings in the recent past, it's time to look for another mortgage company.
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Tips & Warnings
When comparing loan terms and rates, be sure to use an online calculator such as the one at mortgagecalculator.org. It will help you to make a more informed decision.
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- Photo Credit Dez Pain
