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Is There More About Mortgage Rates Than Meets The Eye?

By Kevin Landis

On the surface, mortgage rates may seem simple. When deciding if the rate meets the eye though, there are many things to consider. You must know what the current mortgage rate is and what the APR rate is. The APR rate is the Annual Percentage Rate plus some additional costs incurred at closing, such as discount points, loan fees and mortgage insurance. The APR rate indicates what the total loan will cost you over the life of it and will be slightly higher than the current mortgage rate quoted by your lender.

When Shopping For Mortgage Rates

Mortgage rates and closing costs change every day, so it is important to have the current rates available. If you are shopping for a 30 year fixed rate, check on the same type of loan with other lenders on the very same day. This will assure you get an equitable comparison, for the lowest rate. Most people will make mortgage payments for 15, 20 or 30 years, and you must consider what the long term cost is over the years.

Example of a Mortgage Rate Comparison

Based on $150,000 loan with a 30 year fixed rate:

Lender A – 6.5% current rate (APR 6.83%) with no discount points and $5,000 in fees
Lender B – 6.25% current rate (APR 6.71%) with one discount point of $1,500 and $5,500 in fees, for a total of $7,000 in fees

Over the long term of 30 years, Lender B’s rate is a better rate. If you plan to move in two to three years, Lender A’s rate is better. The extra point and fees of $2,000 paid at closing for Lender B will not be paid back in this amount of time, and the .25% lower current rate doesn’t make up the difference. There is more than meets the eye with mortgage rates.

Related posts:

1. What Are Points On A Mortgage Rate And How Do They Affect My Loan?
2. What Closing Costs Are Relative When Getting A Mortgage Rate Quote?
3. Do APR Payments Go Up When Interest Rates Go Down?
4. How Do I Buy Interest Rates Down For A Mortgage?
5. What Is A Good Faith Estimate For A Home Mortgage?