Finding the best mortgage rates for a home purchase or refinance is one of the most important financial decisions you’ll ever make. To help you find the best rates possible, we’ll take you through the process and provide you with a list of current mortgage rates from leading lenders.
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If you’re looking to buy a home in the near future, chances are you’ll get a mortgage to do it. The vast majority of home buyers get some kind of loan to buy a home. In fact, in 2017, only about 23% of home buyers bought their homes in cash. And most of those cash transactions were for distressed home sales, second homes, or those buying investment properties.
If you’re buying your first home or upgrading your primary residence, you will probably need a loan to get the money you need for such a huge purchase. But when you do that, be sure you get the best possible rate by reading through our article and then shopping around to find the best mortgage rates.
What is a Mortgage?
Technically, a mortgage is a legal term for any loan that is secured by the debtor’s property. So a car loan would also be a type of mortgage, since your car is the security for the debt. Having property as security for your debt simply means that if you default, or fail to make payments on your debt according to the agreement, the creditor can seize your property to make up for their lost payments.
With that said, typically when we use the term mortgage these days, we’re specifically referring to a mortgage on a home. You’ll normally hear other secured loans referred to in other ways, like a car loan or motorcycle loan. In legal and financial terms, these loans are still mortgages. But if you hear or read the word mortgage, you’re likely hearing or reading about a loan that is secured by a home or land, specifically.
What’s a Mortgage Rate?
The mortgage rate is the percentage that you, as the borrower, pay on top of the loan’s principal as you pay down the loan. This money goes back to the lender and is essentially their incentive for lending you money. They make more money back than they lent you, as long as you make your payments on time.
For the majority of mortgages, you’ll start paying interest as soon as you make your first mortgage payment. You’ll pay a certain percentage of the loan’s total balance each month you make a payment, and these interest payments will be written into your monthly mortgage payment.
There are other types of mortgages that don’t look like this, which we’ll discuss below. But for the most part, fixed-rate mortgages that amortize over time are the norm.
The bottom line here is that since a mortgage rate is a form of interest, the lower the rate, the better off you are. A lower mortgage rate means that you pay less of your hard-earned money just for the privilege of borrowing from the lender.
Just as a quick example, let’s say you’re borrowing $100,000 to buy a home. If you pay 3.92% interest on a 30-year loan, you’ll pay a total of $70,213 in interest over the life of the loan. Bump that interest rate up to just 4.92%, and you’ll pay a total of $91,499 in interest. Just a single percentage is an increase of more than $20,000 over the life of your mortgage!
Interest Rate vs. APR
One thing to note is that a mortgage’s interest rate is not the same thing as its APR. The interest rate is the interest-only cost of the loan, and it will be lower than the APR. The APR (annual percentage rate) is the interest rate plus any points, fees, or other charges the lender is allowed to add to the loan.
When you apply for a mortgage, you can find both of these rates in the loan estimate that lenders are required to provide you. You’ll find the interest rate in the Loan Terms section, and you’ll find the APR in the Comparisons section.
Generally since your APR is the higher number, you’ll want to compare loans based on this number. Lender A may offer a lower interest rate than Lender B. But if Lender A adds more fees and other charges, you could actually pay more for their loan. So to be sure you’re making an apples-to-apples comparison, always check out the loan’s APR before you choose your lender.
Compare Current Mortgage Rates
Finding current mortgage rates, generally, is really simple online. You can check out our own table below that compares rates from various lenders. Note, though, that this and other tables are basing their rates on general information. You can filter our table by credit range, purchase amount, and mortgage type to better fit your situation.
You can find competitive mortgage and refinance rates at LendingTree or on the table below:
With that said, even when you filter the table to fit your situation, these may not be the actual mortgage rates you’ll see as a consumer. Lenders look at a variety of criteria, including your buying situation, down payment, and individual credit score information. So the best way to compare your mortgage rates is actually to do some mortgage shopping for yourself. That’s the only way you’ll be sure to get completely accurate information for your situation.
How to Find the Best Mortgage Rates
With all that said above, you don’t want to waste your time applying for a mortgage with every single lender you can find. Instead, takes these steps to find the best mortgage rates:
- First, use our table to filter for your particular circumstances. The default filter probably doesn’t apply to your specific circumstances. So add in your data, including the ZIP code where you want to buy, purchase price and down payment, and your estimated credit score. Then see which lenders pop up as having the best mortgage APRs for your circumstances.
- Next, check out LendingTree’s free mortgage quote option. They will give you estimated mortgage terms from a variety of lenders at once, as well.
- Once you have a list of the lenders that popped up as offering the best rates for your circumstances, apply to at least three of them. To keep from dinging your credit score with multiple credit inquiries, put in all of your applications within a 30-day period. You’ll just need to apply for pre-approval for each lender to see what terms they come back with.
- When lenders respond, compare the mortgage terms for each mortgage, including the APR. Go with the lender that has the best overall terms, including a favorable APR.
Mortgage Repayment
Typically you’ll start making mortgage payments as soon as you close on your new home. This may mean making a prorated, or partial, first payment if you close mid-month. Then you’ll be expected to make payments each month until your mortgage is paid off.
One thing to note about mortgage repayment is that you can save significantly on interest if you pay off your mortgage early. In fact, before you sign for a mortgage, make sure that the lender doesn’t charge any prepayment penalties. This would mean paying extra money even if you pay off the loan early.
But as long as there are no prepayment penalties, you can pay off your loan more quickly to save big money on interest. Adding a little to your payment each month, making one extra payment a year, and paying biweekly instead of monthly are all good options for paying off your mortgage months or years early and saving potentially thousands of dollars in interest.
Different Types of Mortgages
As with other financial products, mortgages come in many different “flavors” to suit different consumers’ needs and preferences. While the fixed-rate 30- or 15-year mortgage is the most common option, it’s not the only option. For a full list of different types of mortgages, check out this article. But here’s a quick run-down of the options:
- Fixed-Rate Mortgage: These are the most common mortgages by far. With this type of mortgage, you’ll pay the same amount payment every month over the full term of the loan. At first, the bulk of your payment will go towards interest, but that will slowly shift so that you’ll mainly pay principal at the end. Fixed-rate mortgages are available in different term lengths, with 15-, 20-, and 30-year being the most common. Typically shorter mortgage lengths have lower interest rates.
- Adjustable-Rate Mortgage (ARM): These mortgages are less common in the United States. But with this option, your mortgage’s rate varies depending on the market. ARMs come in different types, including variable rate mortgages where the rate changes throughout the term and hybrid options where the rate is fixed for a certain time period and variable after that. In a falling-rate market, ARMs can help you take advantage of lowering rates over time without refinancing. But in a raising-rate market, you could find yourself with an unsustainably high mortgage payment.
- Balloon Mortgages: These short-term mortgages have very low payments for a short period of time, but at the end of the loan, you have to pay the full balance. They can be risky unless you have a solid plan to refinance or otherwise pay the balance.
- Interest-Only Mortgage: With this option, you can pay only the interest on the loan for a while, typically a set amount of time. But after that, you’ll have higher payments because you’ll need to increase the amount of principal you pay to pay off the mortgage in time. It can be a decent option for people who are just starting out and need a very low mortgage payment.
- Reverse Mortgage: This is only available to seniors, typically. It lets them spend off their home’s equity and then pay off the mortgage with the sale of the home when they pass away or move out of the home. These mortgages can be tricky, so be sure you understand all the terms before entering into this arrangement.
- Combination Mortgage: This basically gets you out of paying Private Mortgage Insurance (PMI) with a down payment of less than 20% by taking out a regular mortgage for part of the home’s value and then a higher-rate loan for 20% of the value of the home. It can be a reasonable option if you would pay a lot of money for PMI.
How to Get a Mortgage
Getting a mortgage can be a complicated process, since this is likely the largest single loan you’ll ever take out in your life. You’ll want to set aside some serious time for planning and saving for your mortgage. In short, though, here are the steps you’ll take to get a mortgage:
- Boost your credit score. To get the best mortgage interest rates, you’ll need a good credit score. It’s a good idea to take a few months or more to get your credit score in tip-top shape before you apply for a mortgage.
- Save up for a down payment. These days, there are only a few mortgages you can get with a very low down payment. And typically a lower down payment means a higher interest rate. So save up as much as you can to put down on your home before you start shopping.
- Figure out what you can afford. Most mortgage lenders are looking to keep your mortgage payment below a certain percentage of your income. But often times, that percentage is too high for you to truly be comfortable making your payment each month. Be sure you’re really comfortable with your potential mortgage payment before you even start shopping for a house. Check out this article on ways to calculate how much house you can afford.
- Get pre-approved for a mortgage. We discussed above some steps to find the best mortgage rates for your needs. Go through those steps to get pre-approved for a mortgage. This doesn’t guarantee a mortgage at those rates, but it can help you find a lender that will work well for your situation.
- Pick a mortgage and a lender. After you go through the pre-approval process with several lenders, choose your mortgage and lender based on the terms offered.
- Find your house. Each lender will have slightly different requirements for buying a home and vetting that home properly, including inspections. So once you’re pre-approved, find a home that fits your needs and budget. Then the lender can help you walk through the home buying process, all the while finishing up your mortgage application with more personal and financial details.
- Close on your home. Once you’ve gone through all the hoops the lender requires, you can close on your home. This is when you’ll sign the papers on the mortgage and actually buy the home.
Things to Consider Before Getting a Mortgage
Before you get a mortgage, you want to be sure that this is actually the right choice for you. So before you start applying for pre-approval, ask yourself these questions:
- Can I really afford a mortgage? If you have no down payment and no steady source of income, the answer is probably no. Even if you do have money in savings and a decent income, you may not be financially ready for a mortgage. Look at what your budget would look like with all the costs of homeownership, including maintenance and upkeep, and then decide whether or not you need to save for longer.
- Am I going to stay in this area for a while? If you’re planning to move within two or three years, buying a home probably doesn’t make sense. The process of buying a home is expensive. And you won’t pay down the principal much on your mortgage in the first few years. So you could take a loss when you sell your home to move. Unless you’re planning to stick around for at least five years, renting will likely be the better choice.
- Do I understand my credit score and how to improve it? If you don’t even understand your credit score or how to improve it, getting a mortgage is not a good idea. Your mortgage APR, and thus your monthly payments, will depend heavily on your credit score. So be sure you completely understand this score and how to boost it before you apply for a mortgage.
- Am I choosing the right mortgage for my situation? If you are choosing an interest-only mortgage because you can’t afford payments right now, it may not be the right time to get a mortgage at all. Remember that those payments will bump up considerably within a short number of years! So be sure you’re choosing a mortgage can you can consistently afford, even if that means taking on a longer-term mortgage.
Mortgage Application Process
The actual process of applying for a mortgage can seem like a marathon. Lenders are giving you a huge loan, so they expect a lot of information from you. And gathering all the documentation to give them that information can take a lot of time. So be sure you have some space cleared in your schedule to take care of this process with your mortgage.
Here’s a short list of documentation mortgage lenders will need for your application:
- W2s, 1099s, and tax filing information for the past two years
- Your previous three months’ pay stubs or income if you’re a business owner or independent contractor
- The past three months’ bank statements for your checking and savings accounts
- Identification, usually including your driver’s license/state ID and your Social Security Number
- Proof of other income sources that you’re counting towards your overall monthly income
- The specifics of other installment debts like student or auto loans
- Your credit history, which they’ll likely pull themselves after you sign a release waiver
Besides this, though, the lender will ultimately need information on the home you’re planning to buy. They get the final approval on whether or not they’ll lend to you with that property as security, after all. So they’ll likely require a home inspection and appraisal to be sure you aren’t over-paying or paying for a property with serious issues.
Overall, finding the best mortgage rates and applying for a mortgage can take a lot of time and effort. But if you end up getting into an affordable home that meets your needs, it can be well worth the time and effort you put in to find the best mortgage rates.
Topics: MortgagesThe post Best Mortgage Rates Today (Feb 2019 updated) appeared first on The Dough Roller.
from The Dough Roller https://www.doughroller.net/mortgages/mortgage-rates/
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