How to Compare Home Loan Interest Rates

You can minimize monthly payments by comparing mortgage interest rates.

Interest rates and loan terms vary for different home loans. Consumers should invest time in mortgage shopping to obtain the best deal, according to the Federal Reserve. Securing the lowest interest rate minimizes the overall cost of financing and reduces monthly payments. Prospective home buyers should consider several factors, such as interest rates, fees and terms, to secure the best loan.

Instructions

1. Obtain your credit report. Most lenders conduct risk-based lending. With this type of lending, financial institutions assign interest rates based on the consumer’s credit rating. People with better credit ratings may be offered lower interest rates. Annual Credit Report can provide consumers access to credit scores. This information helps when comparing interest rates.

2. Compare interest rates of several lenders. There are different types of lenders, such as banks, mortgage companies and credit unions. Each offers slightly different rates. Consumers who shop around may secure a lower interest rate. Find and compare rates through online comparison tools, which allow consumers to compare rates of financial institutions across the country.

3. Ask about points. Lenders usually publish their best mortgage rate. This rate may include purchasing points. Consumers pay a fee to secure a lower interest rate. Ask the lender to quote the fee for purchasing points, which are often a percentage of the mortgage amount. Based on this information, decide whether it is worthwhile to purchase points for your home loan.

4. Compare mortgage fees. Lenders charge a variety of fees, including loan origination fees, settlement fees, broker fees and appraisal fees. Ask each lender for a list of fees so you can compare loan products. Choose the loan that offers the lowest interest rate and fees.

Tips & Warnings

• Closing costs are negotiable when shopping for a mortgage. Costs handled in-house, such as application or origination fees, are more negotiable. Outside fees, such as appraisal and title fees, are less negotiable.

• Ask about private mortgage insurance (PMI). Consumers who put less than 20 percent down on a loan may be subject to PMI. Borrowers often are required to purchase this insurance to protect the lender from mortgage default.

References

• The Federal Reserve: Looking for the Best Mortgage
• Annual Credit Report: Find Credit Report
• Bank Rate: Find Interest Rates