"What's the lowest interest rate you can offer?"
This is a great question, and often a dangerous one.
With so many details to consider, shopping for a mortgage can be an overwhelming process and as a result people often fall into the trap of lowest-rate tunnel vision.
Interest rates fluctuate due to a number of factors, but one thing is for sure, it’s always a give and take. While this may be unavoidable, it is important to ensure that any compromises being made are in a buyer’s best interest.
On the positive side, lenders will often give a lower interest rate to someone with a short closing period, or “quick closings”. This is because it saves the lender money. Conversely, a buyer may make other sacrifices in exchange for a low interest rate, such as restrictions, hidden fees, surcharges, and/or payment limitations.
For instance, a buyer may negotiate a .10% difference in a mortgage rate only to find out that in doing so, the penalty fee associated with exiting a mortgage early is raised from three months interest to 3% of the mortgage balance.
In real terms, using an example of a $200,000 mortgage at 2.99% interest, a three month penalty would be around $2,835 (for a 5 year fixed term), versus $6,000 if you had to pay 3%, while the .10% payment reduction only saves $7 per month.
The bottom line is that depending on a buyer’s scenario, a lower interest rate isn’t always the most financially beneficial.
Rather than ask “what is the lowest rate I can get?”, we suggest starting out by considering what’s important to you in a mortgage (besides the rate) and find a Mortgage Teacher who can build a mortgage to deliver the best rate while meeting your needs.
A few mortgage features to consider:
- Online payment options
- Unrestricted ability to make additional payments
- Low discharge fees
- No additional registration or service fees
When shopping for a mortgage there are a lot of details to consider, the most important one should always be you.
Here are a few valuable resources to get started:
Brush up on the process of buying and owning a mortgage:http://mortgageteacher.com/#books
Find brokers and compare mortgage rates: www.ratehub.com
Find out what mortgage is best for you: http://mortgageteacher.com/#pop_quiz