Obtaining the best home mortgage loan rate will save you thousands of dollars in interest paid over the life of your loan. Unfortunately, unless you're versed in mortgages, it's easy mortgage refinancing be mislead by lenders. You can refinancing mortgage you're getting a great loan, but in actuality, you can walk out of the closing with a loan that will cost you thousands more than it should.
Let's talk about how to avoid this.
Just to take an example. If you got a 30-year mortgage for a principal of $150,000 with an effective interest rate of 5.5%, your payments would be $851.68. If you get a loan at 6%, your payments would be $899.33. That's a difference of $47.65 per month.
That may not sound like a lot of money when you compare this to a $150,000 house, but over time it will add up. If you kept the house for just 5 years, you would be paying an extra $2859 in interest!
Now, you might be thinking that you can tell if your loan has an interest rate of 5.5% or 6%, and you can if it's the stated interest rate. But there are several ways lenders make money from the money they lend you. And getting your best home mortgage loan rate depends on your understanding this.
When you get a loan, besides the stated interest rate on the loan, you'll also have to pay closing costs and perhaps even points. Closing costs are not technically interest, but to you the borrower they are, because it's money you have to pay to get the house you want. Points are specifically interest paid in advance.
So, now you not only have to check the stated interest rate on your loan, but the closing costs, and the points, too. This makes getting the best home mortgage loan rate more difficult that you might have first imagined.
Fortunately for all of us, there's a better way to compare loans than just by their stated interest rate. It's called the annual percentage rate, or APR. APR is essentially calculated by taking into account all of the money you pay to acquire a certain loan. In other words, the points and even some of the closing costs are included in the APR calculation.
When you're shopping for your best home mortgage loan rate a better way to compare loans is by their APR instead of their stated interest rate. How do you find out the APR? Lenders have to give you this information by law. As a matter of fact, they have to advertise the APR of any loan they're advertising.
To learn more about finding the best mortgage for you and your needs, visit my blog, Best Mortgage Guide.
Patricia Pearce is a consumer advocate and educator. She runs several online sites devoted to empowering consumers to keep more of their money.
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