How To Shop For Mortgage Rates
Mortgage rates are on the rise, and if you’re in the market for a new home, it’s more important than ever to get the best rate possible. But how do you know which mortgage lenders have the best rates? And what’s the difference between a fixed mortgage and an adjustable one? This article is especially helpful for first-time buyers and will help you understand the basics of shopping for mortgage rates so you can get the most affordable mortgage terms for your needs.
What Time of Year is Best to Shop for Mortgage Rates
Generally, summer is the best time to shop for mortgage rates because homebuyers are out in full force and lenders are competing for their business. Also, banks and mortgage brokers may offer special discounts during this time of year due to increased competition in the housing market. Winter is not typically an ideal time to shop for mortgage rates because there is less competition among lenders and homebuyers are often on holiday. Although, lenders often offer special promotions and discounts around certain holidays, such as Thanksgiving and Christmas.
When shopping for mortgage rates, it’s important to consider the following:
- The type of loan you’re looking for
- The loan duration
- Your credit score
- Closing costs
Different lenders may offer different interest rates depending on this variety of factors. You also have to know whether you’re looking for a fixed-rate or adjustable-rate mortgage. Fixed-rate mortgages offer more stability and predictability than adjustable-rate mortgages (ARM), but ARM loans can be beneficial if you plan to pay off your loan quickly or if you expect your income to go up in the future.
How to Compare Mortgage Rates
Once you have a good idea of what type of loan you’re looking for and what kind of interest rate you would be comfortable paying, it’s time to start comparing current mortgage rates from different lenders. You can use online tools such as RateZip.com, MyFico.com, and Credible.com to compare mortgage rates across multiple lenders. These comparisons may not reflect actual offers, but they will give you an idea of what different lenders are offering in terms of interest rates, loan terms, and closing costs. They can provide detailed insights into current market trends as well as personalized quotes for mortgages based on your unique credit profile.
Shopping around for mortgage rates can help you decide whether fixed-rate mortgages are good for you or if adjustable-rate mortgages are the best option. What’s the difference?
Fixed-rate mortgages (30-year fixed-rate mortgage & 15-year fixed-rate mortgage) are loans that have an interest rate and monthly payments that remain the same throughout the life of the loan. This type of loan is best for people who plan to stay in their homes for a long time and want stability in their mortgage payments.
Adjustable rate mortgages (ARMs) are loans with an interest rate that can change over time. The initial interest rates on ARMs tend to be lower than fixed-rate mortgages, however, they may increase or decrease based on market fluctuations and other market conditions. Adjustable rate mortgages (10/1 adjustable-rate mortgage & 5/1 adjustable-rate mortgage) are best suited for people who don’t plan to stay in their home for very long and are comfortable with some uncertainty when it comes to future payments. This is a good option for real estate investors.
There is no one-size-fits-all solution when it comes to choosing between a fixed-rate or adjustable-rate mortgage. It’s important to consider your current financial situation, future plans, and other economic factors before making a decision. Comparing offers from multiple lenders is also recommended so that you can make the most informed decision possible.
How Long You Can Shop for A Mortgage Without Hurting Your Credit
When shopping for a mortgage, it’s important to note that multiple credit inquiries can hurt your credit score. That said, the good news is that most lenders understand that you’re shopping around for a loan and will only count one inquiry from multiple lenders within a 45-day time period as a single inquiry. This means that you should be able to shop for mortgage rates without hurting your credit history and credit score as long as you do so within this window of time.
Not all lenders are created equal. It’s generally a good idea to compare at least three lenders to get a sense of what kind of rates and loan terms you can expect from different institutions. This will also give you more leverage when negotiating with potential lenders.
Is It Better to Go Through A Bank or A Lender?
If you have a good relationship with your bank, it’s generally easier and faster to obtain a mortgage loan through them than it is to go through an outside lender. However, banks often have higher interest rates and fees than online lenders or credit unions, so it’s important to do your research before committing to any one loan.
Banks typically charge higher rates and fees than lenders because they are more heavily regulated and have to comply with a variety of government regulations. Although, they may be able to offer lower interest rates on other loan types due to their access to funds from depositors.
As of November 2022, the average 30-year fixed-rate mortgage was 7.1%, while the 15-year fixed rate was 6.0%. These rates may fluctuate over time. Generally speaking, fixed-rate mortgages tend to be more stable than adjustable-rate mortgages (ARM).
What Happens If Mortgage Interest Rates Drop After You Lock In?
If mortgage interest rates drop after you have locked in a rate, most lenders will allow you to switch to the new lower rate without any additional cost. However, this may not be an option if you have already started the loan process, so it’s best to speak with your lender before making any decisions. Also, if you choose to switch to a lower rate, you may incur closing costs associated with the new loan.
Refinancing your mortgage is also an option if mortgage interest rates drop but this too will incur additional costs. So consider all of these factors and seek expert advice before making a final decision.
Can You Get Approved for A Mortgage Without Perfect Credit?
It is possible to get loan approval for a mortgage even if you do not have a spotless credit report. Many lenders are willing to work with borrowers who have less-than-excellent credit scores and offer special programs that can help make homeownership more accessible. Your interest rates and fees may be higher than those of someone with excellent credit, so it’s best to speak with a lender or a financial advisor before applying for a loan to get an accurate assessment of what you can expect.
Remember that mortgage payments span for years so think long-term. High mortgage interest means high monthly mortgage payments. That can take a toll on your finances so tread lightly.
Mortgage Shopping Do’s and Don’ts
- Compare offers from multiple lenders.
- Consider the APR and base rate when evaluating mortgage rates.
- Research any additional fees associated with a loan offer.
- Ask questions and make sure you understand all terms and conditions before signing.
- Talk to a lender or financial advisor to get answers to any questions you may have.
- Think of your long-term financial goals when shopping for a loan.
- Get a mortgage preapproval before searching for a home and lock in a rate if you find one that meets your needs and budget.
- Don’t rush into making a decision without doing your research first.
- Don’t sign on for a loan application with unfavorable terms or interest rates.
- Don’t forget to consider closing costs and other fees associated with the loan.
- Don’t ignore any concerns or issues that arise during the process.
- Don’t sign any agreements without understanding all of the details.
- Don’t take out more than you can afford to repay in the long run.
- Don’t forget to compare offers from multiple lenders or consider the APR.
- Don’t neglect to ask questions or do research on any additional fees associated with a loan offer.
- Don’t be afraid to switch to a lower rate if rates drop after locking in.
- Don’t refinance without consulting your lender first or researching other options available.
Important Questions to Ask Your Bank or Lender When Shopping for Mortgage Rates
- What are the current mortgage rates/interest rate?
- What type of loan options do you offer?
- Are there any special offers or discounts available?
- Is there a prepayment penalty if I want to pay off the loan early?
- Are there any additional fees associated with this loan, like property taxes?
- How long will it take to process my application and close on the loan?
- What are the terms and conditions of this loan?
- Do you offer any advice, tips, or guidance on refinancing options or other strategies for paying down debt faster?
- Are there any discounts available for first-time home buyers or veterans?
- What kind of customer service do you offer, and how can I contact you if I have questions about my loan in the future?
- Are there any additional mortgage options?
- Is there anything else I should know before deciding on a loan?
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