As current mortgage rates rise you’ll find the competition for your loan heating up. The problem is that banks and mortgage lenders start pitching gimmicks to stand out from the competition. There’s nothing sexy about mortgage loans, so it’s important to recognize that most lenders are simply selling snake oil. Here are several tips to help you get the best mortgage rates today without falling for lender gimmicks.
Mortgage Rates Today
It’s no secret that mortgage rates today are higher than they were this time last year. Higher rates mean lenders are closing fewer loans and start making far-fetched claims and promotions to attract borrowers. Many lenders offer reduced closing costs or offer to lock your mortgage rates for free.
Truth be told, most of the fees your lender is so generously offering to waive are simply junk fees that you shouldn’t be paying in the first place. All the major lenders are guilty of this including Bank of America and Wells Fargo.
Smaller lenders might not offer the same discounts or make outlandish claims; however, they all seem to be resorting to some form of nonsense to win your business.
How To Shop For The Best Mortgage Rates
When shopping for the best deal for your next home loan it’s important to focus on the interest rate AND the fees you’re being charged to get that rate. If you jump for $500 off your origination fee or a so-called “relationship discount” you’re missing out on the deal you could be getting.
Your lender could be offering you a discounted closing but if the overall mortgage rates and fees are higher than what a community credit union is offering those discounts are worthless.
Here’s a Discount If We Screw Up Your Home Loan
One of the worst “discounts” I’ve seen being offered is reducing fees if the mortgage lender screws up. Do you really want to choose a lender that’s offering a discount for not getting your home loan done right the first time? How much consolation are reduced fees for a boatload of stress? Not to mention if you lose your interested rate and wind up with a higher payment.
These promotional discounts mortgage lenders are offering aren’t coming out of the lenders pocket, they’re paid for somewhere, either with a higher interest rate or other junk fees.
Use Your Good Faith Estimate to Comparison Shop
Fortunately the new Good Faith Estimate makes it easy to cut through the promotional crap lenders are offering and comparison shop for a better deal.
Remember the fees you’re paying make or break the deal you’re getting and you can find these fees on page two of the Good Faith Estimate.
Start with the loan origination fee. Many brokers will tell you that one percent is standard; however, I’ve seen small credit unions charge as little as one percent for their loan origination fee.
Another gimmick used by lenders is the “credit” offered for accepting higher than market mortgage rates. You’ll find this credit in item 2 on page 2. Is it worth taking a higher monthly payment for the entire duration of your home loan for this credit applied to your closing costs?
The answer depends on how long you’re planning on keeping the mortgage. If you’re planning on selling your home in the short-term this makes sense assuming you’re not hit with a hefty prepayment penalty.
Carefully comparing the closing costs found on page two from a variety of banks, credit unions and mortgage lenders is the best way to figure out what fees are reasonable and what “promotional discounts” are simply a smokescreen.
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