How to Compare the Market for Mortgage Deals
Mike is a Co-Founder and Chief Operating Officer of Own Up. He has expertise in all areas of residential lending, having led operations for a top 40 lender in the United States.
A great way to compare the market for mortgage deals is to research and compare the interest rates, terms, fees, and other features of multiple mortgage offers from various lenders by using online comparison tools, mortgage brokers, or direct lender quotes. It’s also always important to consider your own financial situation, credit score, and long-term goals when selecting a mortgage deal.
With so many options available, it can be overwhelming to try and compare all the different mortgage deals on the market. But don't worry, there are clear and simple steps you can take today to advantage yourself for tomorrow!
Do Your Research
You guessed it: The first step in comparing mortgage deals is to do your research. To get an idea of what options are available, you can:
- Use comparison websites.
- Visit online mortgage marketplaces.
- Talk to different lenders.
- Consult with a mortgage broker.
Compare Interest Rates and Fees
It's important to consider the interest rate, fees, and repayment terms when comparing different deals.
The interest rate is the cost of borrowing money from a lender, and is one of the most important factors to consider when comparing mortgage deals.
When you take out a mortgage, you'll need to pay interest on the amount you borrow. The lower the interest rate, the lower your monthly payment will be. (The higher the rate? Well, you get it.)
To compare interest rates, you can use online comparison tools, visit different lenders' websites, or work with an advisor to make it easier for you. It's important to keep in mind that interest rates can change frequently, so you should check regularly to ensure you are getting the best deal.
Fees and Other Associated Costs
You also may want to look at any upfront fees or ongoing charges that may be associated with the mortgage. Fees can add up quickly and affect the total cost of your mortgage. Appraisal fees, loan origination fees, points, private mortgage insurance, and ongoing homeownership costs are among the common fees associated with a mortgage.
Appraisal fees are charges that lenders impose on borrowers to conduct a professional appraisal of the property, which is done to determine its value. The fee is typically paid by the borrower (that’s you!) and covers the cost of the survey or valuation required by the lender to assess the property's worth and ensure it is sufficient to secure the loan.
Loan Origination Fee
These costs are charged by the lender for originating (or issuing) you the loan. They are part of the price of borrowing money. Different lenders may choose to itemize these costs to varying degrees – it’s the overall total that matters.
Common charges may be referred to as origination fees, application fees, underwriting fees, processing fees, administrative fees, etc. The loan origination fee is probably the largest single closing cost you’ll encounter, as it’s the primary way that lenders make money.
Points are upfront interest expenses and they let you make a tradeoff between your upfront costs and your monthly payment. By paying points, you pay more upfront, but you receive a lower interest rate and therefore pay less over time. Points can be a good choice for someone who knows they will keep the loan for a long time.
Paying points lowers your interest rate relative to the interest rate you could get with a zero-point loan from the same lender. A loan with one point should have a lower interest rate than a loan with zero points, assuming both loans are offered by the same lender and are the same kind of loan.
It’s also important to understand that a loan with one point at one lender may or may not have a lower interest rate than the same kind of loan with zero points at a different lender. Each lender has their own pricing structure, and some lenders may be more or less expensive overall than other lenders – regardless of whether you’re paying points or not. That’s why it pays to shop around for your mortgage.
Private Mortgage Insurance
Private mortgage insurance, also called PMI, is a type of mortgage insurance you may be required to pay if you have a conventional loan. Like other kinds of mortgage insurance, PMI protects the lender – not you – if you stop making payments on your loan. This is an additional cost of borrowing money and is typically required for borrowers who make a down payment of less than 20%.
There are ongoing costs of homeownership, not of borrowing money. These costs normally include property taxes, homeowner association fees (for certain types of properties), and homeowners’ insurance. They are sometimes bundled with your monthly payment and managed by the lender through an escrow account.
Consider the Repayment Terms
Another factor to consider when comparing mortgage deals is the repayment terms.
The term of the mortgage is the length of time over which you'll repay the loan. The most common mortgage term is 30 years, but you can find mortgages with terms as short as 10 years or as long as 40 years.
When comparing mortgage deals, consider the length of the term and how it will impact your monthly payment. A shorter-term mortgage will have a higher monthly payment, but you'll pay less interest over the life of the loan. A longer-term mortgage will have a lower monthly payment, but you'll pay more interest over the life of the loan.
Apply for Pre-Approval
It's also a good idea to get pre-approved for a mortgage before you start looking for a home. This can give you a better idea of what you can afford and make the home-buying process smoother.
A pre-approval letter is a document from a lender that states how much money you can borrow for a mortgage based on your income, credit score, and other financial factors. It can give you a clearer idea of what you can afford to spend on a home, which can help you narrow down your search and focus on mortgage deals that fit within your budget.
Having a pre-approval letter can also give you leverage when negotiating with lenders. If a lender knows that you have already been pre-approved for a certain amount, they may be more willing to offer you a better interest rate or other terms to win your business.
Also, having a pre-approval letter can speed up the process of obtaining a mortgage. Since you have already gone through the pre-approval process, you will have already provided the lender with much of the information they need to process your mortgage application. This can help you secure a mortgage more quickly and easily, which can be especially important in a competitive real estate market.
Bring it Home
The process of obtaining a mortgage can be challenging, as there are numerous options to consider, an abundance of terms and conditions to review, and a variety of calculations to make. However, with a little guidance, you can navigate the complexities of interest rates and fees to choose the best deal for your specific needs.
Take the time to do your research, consider all the factors, and obtain pre-approval for a mortgage to make the process as easy and cost-effective as possible.