[This is a guest post by Betsy Falwell. Think you’ve got what it takes to be a guest poster? Contact Em at em [at] blondeandbalanced [dot] com to learn more about becoming a guest poster yourself!]
Whether you’re shopping for your first home or a current homeowner looking to lower your housing costs, now is the best time—not just in years, but in generations—to shop around and compare home loans. With the average interest rate on a 30-year fixed mortgage below 4%, failing to conduct a serious home loan comparison will cost you… literally.
Shopping for a New Loan
If you’re a prospective first-time homeowner, you may be unfamiliar with a lot of these terms. Fixed loans? ARMs? Interest rates? It’s a lot to take in, especially if you’re never navigated the waters of the housing market before.
While you may be tempted to start—and end—your search for a home loan with your regular bank, doing so is a big mistake. Although brick-and-mortar banks do offer mortgage products, they often come with a lot of overhead. You may be able to cut down on costs (lower interest rates and reduced fees) if you compare home loans with online financial institutions as well. Don’t overlook credit unions, either; they often offer great rates for members.
Refinancing Amid Lifestyle Changes
Maybe you just had a baby, you’re embarking on a new job, or you’re struggling to make ends meet in the midst of a tough economy. Refinancing your existing mortgage to take advantage of these historically low interest rates can help you find some wiggle room in your monthly budget.
The standard rule of thumb when it comes to refinancing is that it only pays when your existing interest rate is a point or more higher than current rates. The reasoning? Closing costs can cancel out much of the savings you’d see from a lower interest rate. This is true—most of the time. Some lenders may offer discounts for repeat customers, charging you minimal closing costs on the refinance. If you are lucky enough to find an offer like this, it may be in your interest to refinance your home loan even if the difference between rates is less than one percentage point.
Working with a Mortgage Broker
If you don’t know how a mortgage broker can help you save big bucks on your new or existing home loan, you should. There’s a gross misconception about how these mortgage professionals operate. Their job is to help guide you to a mortgage that fits your needs in every respect by helping you compare home loans. They know the differences between adjustable-rate mortgages, fixed loans, and interest-only products. They can help you figure out which term is right for you. They can fill you in on whether closing costs are in the normal range or too high. In exchange, you don’t have to pay them a single dime; rather, they are paid commissions from the lender. (This is similar to how real estate agents are paid. The buyer doesn’t pay their fee;instead, it’s paid by the seller.)
While a mortgage professional at your bank will only do home loan comparisons on the products offered by their financial institution, mortgage brokers are free to examine products from a variety of lenders. This allows you to do one-stop shopping, saving you time and money.
How Much Can You Save?
My husband and I went through a mortgage refinance in 2009. At the time, we were paying $922 a month toward the outstanding balance on our home loan. We were able to reduce our interest rate by just under two percentage points, saving us more than $200 a month.
Now, we’re going to compare home loans again, as interest rates today are more than a point lower than they were when we refinanced. We’re hoping to shave off another $100 a month off our mortgage payment.
How much could you save? You’ll never know if you don’t compare home loans yourself!
Photo credit: lumaxart
I like to set a Google Calendar reminder every year to “Review The Mortgage”. Basically this just involves doing a quick check online to see what rates all the major banks/lenders are offering and compare it what we’re on. Even 0.3% of a difference on a $250,000 loan saves you $750 over the year and considering it normally only takes an hour or two to check (and you can save even more than 0.3% quite often) it’s a no-brainer!
P.S. I’d also recommend Mortgage Choice (the link in the last sentence) as they’re very informative, professional and free