Find the Lowest Rate Possible

By Steve Gillman - 2005

Do you really want the lowest rate on that mortgage loan? Maybe - but not if it ends up costing you more. You have to look at all the factors involved.

For example, is the loan a fixed-rate loan or a variable rate loan? The lowest interest rate now could become the highest rate later. Is there a balloon? You don't want to have to refinance in five years just to discover that interest rates then are so high you don't qualify. Is the interest rate low due to high fees and points that will cost you more than the savings? You don't save what they say you do unless you keep the loan for the whole term, whether that's 15 or 30 years.

What you need to do, then, is determine first what kind of loan you feel comfortable with. For this you need to seriously consider how long you are likely to keep the mortgage loan. It may make sense accept a variable rate loan - or even one with a balloon - if you know you'll be moving in a few years.

On the other hand, if you are fairly sure you are going to be in your new home for a long time, you might prefer the security of a fixed rate. Also, keeping a loan for a long time means that paying points for the lowest rate also makes more sense. It typically takes at least a few years for the savings from a lower payment to equal the cost of the points.

Getting the Lowest Rate

Given the above factors, it is easy to see that the lowest rate is not the only consideration. But once you have determined what type or types of loans you are interested in, then you can fairly compare the various offerings, to get the lowest interest rate on a loan that works for you. It is time to go shopping.

You can start online, by searching for "mortgage loans," "low rate loans," or something similar. Just looking at the offerings advertised will give you some idea of where the best rates are found. However, the final rate will be determined by your credit score as well, and different lenders have different rules about that, so be aware that this first look will only give you a rough idea.

Other places to look for low interest rate loans are banks, credit unions and mortgage lenders in your own town. Since they are run for the benefit of their members, it might seem that credit unions would have the lowest interest rates and fees. This is sometimes true, but not always, so don't just check a few credit unions - check couple different types of lenders as well.

Ask a lot of questions. In particular, ask about any and all fees and costs. I once talked a lender into skipping the appraisal on a home, which saved us several hundred dollars. To compare the various loans fairly, you need to know all the costs. Getting the lowest rate is great, but it is just one factor in the total cost of a loan.

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