Real Estate Search Direct

Interest rates are the lowest they have been in decades, but how do you know you are getting the best rate possible?  How do you know what the current best mortgage interest rate is? 

When Homer Buyer was shopping for a mortgage to buy his house, he went to several lenders and received quotes.  He had never got a mortgage before, so he wasn’t too sure about all the terminology. 

The lenders seemed to speak a different language.  One lender had a 5/1 ARM with a 4.9% interest rate and an APR of 5.2% and 1.5 points.  Another had a 30 year fixed with 2 points with an interest rate of 4.65% and an APR of 5.3%.  Which one is the better deal?

Homer wasn’t sure which was the better deal.  He decided he needed to learn the terminology to make a better evaluation of the loan quotes he got.

Here are some of the terms he learned:

• A point or discount point is a fee paid up front to reduce the interest rate.  1 point is equal to 1% of the loan amount.
• The interest rate is  the amount paid in interest exclusive of other fees.
• The APR or Annual Percentage Rate is the total cost of the loan with all fees added in and averaged over the term of the loan
• PMI is private mortgage insurance. This is an additional payment that lenders will sometimes require for higher risk loans with less than 20% down payment.
• FHA is the Federal Housing Authority.  The FHA provides a guarantee on loans meeting their requirements.  This guarantee will allow down payments as low as 3.5% of the purchase price.
• VA is the Veterans Administration.  The VA guarantees loans for qualified veterans of the US military.  With a VA guarantee you can get a loan with 0% down payment.
• Good Faith Estimate – the lender is required by law to provide a good faith estimate that shows all estimated fees associated with the loan.

Homer learned that the APR is the best way to compare loans.  Even using the APR for comparison, it can be unclear which loan is the best if you don’t keep the property for the full term of the loan. 

For a 30 year mortgage the up front fees are spread out over 30 year when including them in the APR.  If you sell the house or refinance the loan sooner, the APR does not reflect an accurate picture of the total cost of the loan.

Below you can see a table of the mortgage interest rate currently offered, based on an excellent credit score and 20% down payment.

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Allen Davis
RealEstateSearchDirect.com