In recent days, mortgage interest rates plummeted to a 3-year low. This is welcome news for home buyers trying to secure great financing this summer, but the best way to ensure you get a good rate on your mortgage is to become an informed buyer. The more you know about mortgages, the more you'll be able to save in this highly-attractive market, and that doesn't just mean knowing where to find the best interest rate — it's also about getting the best financing with the lowest overall cost.
While interest rates play an important role in determining the price of your mortgage, there's always more to a mortgage than just the interest rate. Here are three things you need to know about mortgages to make sure you secure a favorable rate.
Aside from the interest rate, the biggest factor affecting the price of a mortgage is often the fees involved. These fees won't always be easy to find, so you might have to do some homework if you want to compare fees charged by different lenders.
Sometimes, it's possible to have these fees waived or removed. For example, if you end up moving your mortgage from one lender to another, the original lender may have some sort of mortgage pre-payment penalty. You'll want to make sure the terms of your existing mortgage loan don't include fees like this before you refinance.
When you get a quote for a mortgage, each lender will offer a "lock-in period" in which the lender guarantees the interest rate for your mortgage stays the same. Because interest rates fluctuate so often, this "lock-in period" ensures that you end up paying the same rate you were initially offered should you choose to take out a mortgage with that lender.
If you need a longer lock-in period of two months or more, many lenders will charge a higher interest rate for that provision. For this reason, it's a good idea to be sure about the closing date of your sale so you can avoid missing out on the lock-in period or being forced to ask for a rate-lock extension.
Generally, a better credit score means a better mortgage rate, but it's important that you don't damage your score while you're shopping around for mortgages.
Every lender will want to know your credit score and see your credit history. The good news is that every inquiry of the same type (mortgage in this case) will only count as a single inquiry on your score. However, if you have other types of credit pulled, like furniture or auto financing, then too many inquiries into your credit history can lower your credit score. Your best bet is to hold off on any additional financing until your home purchase loan is completed.
Of course, it's always important to shop around and compare rates when you're looking for the best mortgage deal. And now that you know these extra pieces of information about how mortgages work, you should have an easier time differentiating between a good mortgage rate and a bad mortgage rate. A mortgage rate that looks good at first could end up being a bad mortgage rate in the end because of hidden fees and other cost factors.
To learn more about finding the best mortgage rates, contact us and get connected with a local mortgage expert. Still researching the home buying process? Check out our blog outlining 4 Strategies to Get A Lower Price on Your Dream Home.
Please be aware: by refinancing your existing mortgage, your total finance charges may be higher over the life of the loan.