If you have used lender financing, you already know the interest rate and loan amount have the biggest impact on your monthly payments. While property taxes and insurance are included in the payment, they pale in comparison to the impact of the respective interest rate. Many investment programs have gone by the wayside, but if you have a down payment between 20-30%, a credit score over 720 and a low debt-to-income ratio, you are in a position to look for the lowest interest rate possible. How you manage these conditions will decide how much you are ultimately paying.
The higher the loan amount, the less the interest rate has to change to see a difference in the payment. An eighth of a point change on a million dollar loan could mean the difference of a couple hundred dollars while the same difference on a $200,000 loan could only mean $20. That does not mean you shouldn’t fight for the best deal possible, but you have to know that interest rate movement is a two way street.
Nobody every thinks that rates are going to move up until they actually do. When they do move up, you find yourself chasing after the rate that you could have had. Soon enough, you are now a quarter or a half point higher than you could have been and are kicking yourself. The first rule is that if you are comfortable with the rate and the monthly payment, lock it in. There are some indicators as to where the rates are going to go, such as job reports and housing numbers. However, rates in general always move higher much quicker than they go lower. If wait around for rates to get back to the historic lows of a year or so ago, you will be waiting a very long time.
If you are shopping around between a broker and a local bank, put the big picture in mind. It does you little good to go with the individual or company that is an eight of a point lower if you can’t really close your loan or close it in a timely fashion. To save $15 a month, but risk losing the deal, is not a very savvy tradeoff. Go with the company that you feel can get the job done, even if it is at a higher rate.
The second rule in rate shopping is to compare apples to apples. It is possible to get a lower rate if you want to pay for it. Make sure you let both parties know that you are looking for the lowest interest rate without paying any points. If they can’t produce something in writing, they are probably not a very reputable company. Compare the bank closing costs only and make your decision based on that. Remember that interest rates can change every day, so the rate you were quoted on Monday may not be available if you wait until Friday to commit.
You should be able to easily find a mortgage calculator online. Play around with the numbers on the interest rate, loan amount and term of the mortgage. See how much each change impacts your specific loan. Find a target principal and interest amount that you are comfortable paying and shoot for that rate. If you get it and are comfortable with the company, go ahead and lock the rate in. There is no need to play the interest rate game. For questions regarding the term of the loan, click here.