How to Compare Mortgage Rates & Lenders
- 1). Look at the type of mortgage. Mortgages come in one of two main varieties: fixed rate and adjustable rate. Under a fixed-rate mortgage, the interest paid by the borrower stays constant throughout the life of the loan. By contrast, the rate of interest on variable-rate mortgage will move around, based on the prevailing prime rate. Be aware that on an adjustable-rate mortgage, your interest payments could spike.
- 2). Know the interest rate. If you're paying a fixed-rate mortgage, the interest rate on the loan is constant and therefore predictable. However, the interest rate on an adjustable-rate mortgage can vary. The rate on these mortgages is tied to one or more indexes -- measurements of the market rate of interest. To calculate your future payments, check what the historic rate of interest on the relevant index has been and what it is currently, and then add the margin placed on top of the going rate by the lender.
- 3). Calculate the points. Points are amounts paid up front on the loan, calculated as a percentage of the total amount of the loan. For example, 1 point on a $200,000 loan is $2,000. The more points you pay up front, the lower an interest rate you receive. Calculate how much you want to put down and what kind of discount you will get on your interest rate.
- 4). Add up the fees. Most home lenders charge a variety of fees for issuing the loan, including an appraisal fee, a transfer fee and lender fee. Ask each lender to give you a full accounting on the fees you will pay before signing any contracts.
- 5). Research the lender's reputation. As demonstrated by the financial crisis that began in 2008, not all lenders act ethically when making home loans. Some offer misleading terms, while others do not fulfill the terms of the contract. Before signing with a lender, research its reputation. Contact your state attorney general's office to see whether there are any pending lawsuits or investigations.