Anyone who has every had to look for a mortgage will tell you how important it is to check various mortgage rates to ensure that you are getting the best interest rate and the best mortgage for you and your finances. In the past, searching for mortgage rates meant calling lenders and finding out what their rates were, as well as their terms. This was a long process that many people balked at – and many didn’t do at all because of the amount of time that it took. However, now you’re in luck. Finding mortgage rates for comparison has never been easier thanks to the Internet.
The Internet has opened a whole new realm of competition between lending institutions, which is beneficial to mortgage rate seekers. This means that the information about different mortgages, including the mortgage rates, is just a few clicks away for anyone. It’s important that you have your ducks in a row, and that you have a mortgage in place before you begin to purchase a home. Having a mortgage in place will tell you how much money you can spend on a home and you will go in knowing how much it will cost you. This can help make your decision on the upper limit you want to spend on your home – you may want to save some of that ‘mortgage credit’ to upgrade the home you choose, so spend carefully.
The very first thing you need to do when looking for a mortgage is create a database so that you can make your comparisons. Microsoft Excel, or a similar program, is perfect for this, because you can have multiple tabs for different types of mortgages and you can lay it out so that it is easy to understand when you begin to make your comparisons.
Your database should compare an in-depth comparison of the many options and rates associated with a mortgage. Your database should include:
- Mortgage type (adjustable rate mortgage, fixed rate mortgage, balloon, etc.)
- Interest rate overall
- Index rate (that the lender uses to create the final interest rate)
- Lender’s margin (percentage point that is added onto the index rate by the lender)
- Length/term of the mortgage
- Any other features that make or break a mortgage to make it more friendly to your finances
The first thing you should do is compare the interest rates. These can vary quite a bit, and it’s important to understand how they work. Regardless of the type of mortgage that you get, the lender will base the interest rate on an index. The most common indexes used to determine the interest rates are:
- One-year constant maturity treasury securities (CMT)
- Cost of Funds Index (COFI)
- London Interbank Offered Rate (LIBOR)
- A lending institution’s own costs of funds.
On top of that index interest rate, the lender will attach their margin percentage. The margin ensures that the lender will make money on your mortgage at a fairly steady stream.
It’s also important to note that when you are looking at the interest rates, the very first thing that will jump out at you is how ‘low’ the adjustable rate mortgage interest rates are. While they can be very compelling, in some cases several percentage points lower than a fixed rate mortgage, it’s imperative that you check out all the factors that pertain to an adjustable rate mortgage, including:
- Payment cap
- Interest rate cap
- The margin
- How often the rate will adjust
- Prepayment penalties on the mortgage
- How long you will be staying in the house
Most adjustable rate mortgages appeal to home buyers who only plan to live in the house for three to five years – this means they can take advantage of the lower interest rates and pay less, while not having to worry about drastic increases in the interest rate over a longer period of time.
To use the Internet, all you have to do is go to a major search engine and search for ‘mortgages rate’. You will find thousands and thousands of results, literally. There are many websites that offer mortgage rate comparisons online from many different lenders as well. But, by doing your own research, you may be able to find some smaller company that is offering great interest rates. The best place to start is with an idea of where you want to look – your friends, relatives, neighbors, other home owners, forums on the Internet, your realtor – all of these people may be able to give you some referrals to mortgage lenders that you should check out.