Slash Your ost of Interest

ou know the drill, "Shop until you drop. Call lenders and search for the best rate. An interest rate just one-half percent lower than the competition can cut thousands of dollars from your total mortgage costs."

What's Right and What's Wrong with This Advice?

First, what's right. No question, save one-half percent on your mortgage interest rate and you put thousands into your pocket. Do shop for your financing and compare interest rates and other costs (see Chapter 9). However, dialing for dollars to find the best rate on a 30-year, fixed-rate mortgage (as most borrowers do) won't necessarily get you the lowest rate you are quoted.

Rate Quotes

No loan rep can know the interest rate a lender will charge you until after you've submitted your application for a loan. Interest rates for 30-year fixed-rate mortgages will vary according to your credit score, qualifying ratios, cash reserves, amount of down payment, type of property, and other variables the loan reps won't learn until they see all of your financial data. Moreover, mortgage rates change daily. No loan rep can confirm the rate you will pay until the day you lock or the day funding occurs (if you choose not to lock).

Loan reps who offer a lowball rate quote may set you up for bait and switch or other disreputable sales tactics (see Chapter 9). However, telephone rate quotes aren't the only problem. Many borrowers mistakenly assume that they should originate a new 30-year fixed-rate mortgage before they've fully explored their other financing alternatives.

Alternative Terms and Sources of Financing

Always compare interest rates and fees (as well as other terms discussed later) among a variety of loan products. Mortgage markets change. The best loan yesterday may differ from the best loan tomorrow. Plus, how long you plan to keep your loan should affect your choice. To slash your cost of interest, weigh the costs and benefits of a variety of loan products.

You save money when you locate a 30-year loan at a lower rate. But you can sometimes save far more when you select another type of loan.1


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