How to Get the Cheapest Mortgage
Many borrowers erroneously assume that the mortgage loan with the lowest interest rate is the cheapest mortgage option. However, this is not always the case. Mortgage lenders are required to give borrowers a copy of the APR, or annual percentage rate of the loan. This is the numerical representation of the total cost of the mortgage in one full year, including fees and monthly interest rate. The mortgage option with the lowest APR is the cheapest mortgage option.
Other People Are Reading
Instructions
-
-
1
Shop around, comparing APR and rate quotes for the cheapest option. Make sure to compare at least three different lenders. The shorter the term, or length, of the mortgage, the cheaper the overall cost of the mortgage. A 15-year mortgage, for example, can cost several thousand dollars cheaper in the long run than a 30-year mortgage due to the overall interest expense. While many borrowers cannot afford a 15-year mortgage payment, simply by making one extra mortgage payment a year, a borrower can knock 7 years off the life of a 30-year fixed mortgage. Extra principal payments can save the borrower thousands in interest over the life of the loan.
-
2
Look at the top left hand box on the Truth in Lending Statement. This contains the APR for the mortgage loan. Compare three different mortgage quotes; the one with the lowest APR is the cheapest overall mortgage. The last box on the Truth in Lending form shows the entire cost of the loan over the life of the mortgage.
-
-
3
Comb through the applicable Good Faith Estimates to see what fees are being charged to the borrower. See if any of the fees, especially origination and lender fees, can be reduced.
-
4
Ask your lender about the various options that meet your mortgage needs. While a shorter term mortgage will lower your overall interest expense, it may not be affordable. See if government mortgage programs, such as FHA and USDA, will help to lower your monthly payment.
-
5
Discuss down payment options with your lender as well. The larger the down payment, the smaller the mortgage and the cheaper the overall cost. However, having savings can help a borrower in times of extra expenses. Have the lender work up several quotes to show you the difference the down payment makes in your overall mortgage expenses.
-
1
Tips & Warnings
To keep from having your credit pulled by several lenders and dropping your score, pull your own credit through AnnualCreditReport.com and provide the lenders with your credit report. Only allow the final lender to pull a credit report on you to reduce the impact on your score.
Keep the original Truth in Lending and Good Faith Estimate for the loan chosen to match the final ones to the original ones to ensure that additional fees were not charged to the borrower at the closing table.
