How to Determine Best Mortgage Rate With & Without Points
Homeowners looking to refinance, or buyers looking to secure a mortgage, are always looking for the best deal on a mortgage. Many assume that simply the lowest rate possible is the best deal for the mortgage. However, it is the annual percentage rate, or APR, that really tells the borrower whether they are getting the best deal. Here is how to determine a best mortgage rate, with and without points, by using the APR.
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Instructions
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Ask each lender you are shopping for rates to provide you with a Truth-In-Lending Statement and a Good Faith Estimate along with its best interest rate. The Truth-in-Lending Statement is required by law to calculate the APR for the loan with exactly the same calculation as every other lender in the country. The Good Faith Estimate simply outlines the fees charged on the loan.
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Look at each Truth in Lending Statement. In a box in the top left-hand corner will be the APR for the loan. The lowest APR is the lowest overall priced loan. The APR takes into consideration the monthly interest rate charged on the loan, as well as all of the fees associated with the loan. If there is a significant difference in the APRs of the loans, one is probably charging the borrower points (a point is a fee to lower the interest rate). Additionally, the last box at the top of the page will show the borrower how much will be spent on mortgage, including interest, over the life of the loan. This can futher help the borrower determine the cheapest overall loan.
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Look at each Good Faith Estimate to compare closing costs. The Good Faith Estimate might vary from lender to lender, but the closing costs should be pretty comparable, within $500 or so of each other. If not, one is charging you larger fees or one has left out taxes and insurance. If two companies have APRs that are identical or close to identical, this form helps show you where your money will go.
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Tips & Warnings
Make sure to negotiate the closing costs to get the lowest possible APR on the loan. If the closing costs decrease, the APR will decrease as well.
Many people think that paying points to get a lower rate makes the loan cheaper. However, they might pay more in points than they would have paid in interest. It is up to the borrower to calculate which is cheaper and to decide which is better for their situation. If it takes longer to break even on the points than the time the borrower will live in the house, it is not worth it to purchase points.
