How Important is Your Interest Rate?
After hovering near historic lows for much of the past year, mortgage rates have ticked up recently and that trend may continue into the new year. Fortunately, despite the importance that most mortgage shoppers give to interest rates, they are not always the most important factor to consider in a loan.
If you’re in the market for a new home or refinancing your current one, be sure you’re paying attention to all of the terms that can have just as much impact on reaching your housing goals.
Interest Rate vs. APR
While a loan’s interest rate is a significant number when calculating the cost of a mortgage, it doesn’t tell the whole story. Instead, other items impact the bottom line and should be evaluated when comparing your options.
The Annual Percentage Rate or APR can be a better indicator of a loan’s cost and is also provided to borrowers, even though they may overlook it. In addition to the interest rate, the APR will take into account the lender’s fees, any points purchased to lower the interest rate, as well as other charges that may be required to close the mortgage. When shopping for a mortgage, it is essential to look beyond the interest rate to consider the loan’s APR.
Obviously, borrowing costs play a huge role in determining your monthly mortgage payment. Yet, homebuyers interested in saving money can usually cut costs dramatically by focusing on the length of the loan’s term. Opting for a 15 or 20-year mortgage rather than a traditional 30-year agreement will certainly increase your monthly payments, but it also reduces the overall cost of the loan. That’s because paying down the principal faster is the most effective way to minimize interest charges.
Loan length is not the only way timing can be as important as your interest rate. In a competitive real estate market, like most of the country is experiencing, you’ll want to work with a lender who you can count on to move quickly. Be sure to ask any mortgage companies you approach how soon they can be ready to close after you find a home. Although some steps, such as the appraisal, will be beyond their control, you’ll want an ally who is proactive about getting your underwriting completed and can explain how their process avoids unnecessary delays.
Similarly, your experience communicating with a lender about your borrowing options could be even more important than the savings that come with a minor difference in fees and interest rates. If cutting a few dollars per month off your mortgage payment comes at the cost of a loan officer who is hard to reach or won’t make adjustments to match your communication preferences, the stress of the process could be overwhelming.
When you’re doing your homework to find out the interest rates you qualify for, don’t let the numbers distract you from any frustrations you might encounter during your interactions with the representative. If you think it might be a sign of things to come, continuing your search for a different loan and lender is probably a safe bet.
Start your mortgage search with a lender who knows that finding the right home is most important to you. Our representatives are ready to answer the lending questions to get you there. Explore our website or call to learn more.