September 11th, 2014 8:21 PM by Dana Bain
Mortgage rates haven't moved much this year, and the good news is they've been stuck at historically low levels. But the bad news is that may be about to change.
Both home prices and mortgage rates are expected to move higher as we head through the fall, and that makes shopping for the right mortgage all the more critical. While various groups report national mortgage rate averages each week, the rates you get can vary dramatically from that average, depending on what product you choose and how you shop. So how do you get the best rate? We asked some of the top mortgage professionals across the nation for their top tips:
"Don't overpay for your mortgage. One of the biggest mistakes home buyers make is to take a 30-year, fixed-rate mortgage when they don't need it."
The 30-year fixed is the most expensive of all mortgage products because the rate is the highest and you're paying for the longest time. Choose a product that matches how long you expect to be in your home. If it's just five years or less, then a 5/1 adjustable rate mortgage (ARM) which is fixed for five years will be a much cheaper option. If you're conservative, try a 7/1 or 10/1 ARM. The rates on all of these are lower than the 30-year fixed and can save you thousands of dollars over the life of the loan.
"Don't be fooled by points"
Points are an upfront payment of interest in exchange for a lower rate. This boosts your closing costs and makes the rate appear to be artificially low. This can make sense if you're going to be in your home for a very long time. If you're not, then the savings you're getting in the lower rate over time is never going to make up for that higher cost upfront.
"Don't fight the documentation requests"
A great rate can turn into a bad one if your rate lock expires or you have to pay for an extension. Get your financial house in order before you even apply for a loan. Documentation requirements can be arduous these days, but fighting them will get you nowhere as most are institutional and are not going to be waived.
"Beware of hidden fees and loan level pricing adjustments"
Artificially low advertised rates may come with additional points or closing costs. Be sure to review a full breakdown of closing costs before committing to a lender. If your property is a condo, your loan is cash-out or you have a lower credit score, your rate will rise, so make sure you give all your information to the lender up front, so that lender can give you an accurate quote.
"You can shop by rate or shop by fees, but you can't shop for both at the same time."
Decide your strategy first, what makes the most sense for you financially, and then stick to the plan.
"You don't have to 'save 1 percentage point' for a refinance to make sense."
That strategy is a relic from our grandparents' generation, when loan sizes were much lower, less than $100,000, and when closing costs could run 10 percent of the loan size or more. Think in terms of monthly savings—not interest rate reduction. If your savings offsets the costs, then go for it.
"Always compare the zero-closing cost mortgage"
Zero-closing cost mortgages are sometimes available for as little as 12.5 basis points (0.125 percent) added to your mortgage rate. Your payment might rise $30-50 per month, but you'll eliminate $4,000 in closing costs or more. Again, this depends on how long you intend to hold the loan.
"Don't make the mistake of pricing out lenders on different days"
Get a few lenders in place and price them out all at the same time. Rates can vary even hour-to-hour, so you want to get the best comparison possible.
"Don't let multiple lenders run your credit score"
This can actually damage your score. Get one credit report done, a three-merge score, where one lender pulls Experian, Transunion and Equifax all together and your loan is based on the middle FICO score.-----------------------------------------------------------