EXPERT INSIGHT: Interest rates are rising, act now!
On average, a 1% difference in interest rates will cost you $42,772.56 or more over the life of your loan.
With so many lenders offering mortgage products today, it can be difficult to know which loan is truly the best deal for you.
Fortunately, there are a few relatively simple ways to compare mortgage interest rates, and taking the time to explore at least one of them could mean big savings for you over the life of the loan.
Most loans will list two rates – the posted rate and the APR (Annual Percentage Rate), which is the actual rate you’ll pay when all the associated costs are considered. The APR is usually a little higher than the posted rate, and because different lenders may have different fees associated with their loan products, the APR is the rate you want to compare to see which loan actually offers the best rate over time.
These handy mortgage calculators take basic information – usually your loan amount, the associated interest rate and the term – to quickly determine your monthly payment and provide you with an amortization table that shows how your loan balance will change during the life of your loan. Many loan calculators also allow you to include property taxes and home insurance in your cost estimates to let you get a feel for what your real monthly obligation would be. In short, they’re a great way to test different scenarios to find out which one is best for you.
After you apply for a loan and are approved, the lender is obligated to provide you with a Good Faith Estimate (GFE) within three days. This seemingly simple document is packed with important information that can help you understand the true costs of the loan. A GFE contains an itemized rundown of all the fees and costs you can expect to incur if you accept the loan agreement. It’s important to note that while a GFE is not written in stone – some items may be a little more or less costly when it comes time to close – lenders are bound by federal law to ensure the items and costs they quote are given in “good faith” – that is, this is a best estimate of related costs. Once you know all the costs involved, you can perform a much more accurate comparison among different loans. (Bonus: While most items listed on a GFE must be paid, some items may be negotiable – especially courier fees and office costs, like copying and faxing; it doesn’t hurt to ask!)
Why you should Get A Quote Today
Consider a $200,000 30-year mortgage at 4%. Over the entire life of the loan, you’ll end up paying $143,739.01 in interest.
Now, suppose you wait and interest rates climb to 5%. At the end of that 30-year period, you would have paid $186,511.57 in interest. That’s a difference of $42,772.56.
Of course, the bigger your mortgage, the bigger the difference: A $300,000 mortgage at 4% vs 5%, would net a difference of $64,158.83.
While comparing the costs of multiple mortgages may sound like a complicated and time-consuming task; the truth is, any of the simple comparison methods highlighted above only require a minimal investment of your time, but the results can yield huge savings (tens of thousands of dollars) for you over the lifetime of your mortgage.