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SHOPPING FOR THE BEST MORTGAGE DEAL!

Planning for a mortgage? Do consider the following points listed below before you take any decision.

  • Always compare similar products from different lender e.g. it does not make sense to compare 30 yr fixed with 15 yrs fixed or comparing an ARM to fixed, etc.
  • Try to fix the lock in period from different lenders while comparing. Most lenders can offer you different rate and point combinations for the same loan product and allow you to choose the lock-in period;
  • Add on the total lender fees for that rate including points and loan related fees. There are a number of different fees paid in connection with loan, and some lenders have different names for them. One lender might offer to waive one fee and then add another one. So when comparing loans of different lenders you should look at the total sum of all loan related fees. These fees may include processing and underwriting fee, mortgage insurance premium, appraisal fee, the cost of a credit report, tax service fee, application, commitment, wire transfer fee, among others. Points may include discount and origination points requiring conversion into dollar.
  • The lender that has lower lender fees has a cheaper loan than the lender with higher fees.

To understand the above, the following example could help you well:

For a loan amount of 200,000 on a 30 year fixed rate mortgage:

Lender A is offering you a rate of 6.375% with 0 points, 6.25% with 0.5 points, and 6.125% with 1 point. He also charges $250 in loan related fees.

Lender B offers you 6.25% on the same loan with 0.375 points, 6.125% with 0.875 points, and 6.000% with 1.375 points and charges $600 in loan related fees.

Both lenders are quoting rates on a 45 day lock. Which lender has the better deal?


Lender A  

Rate

Points

6.125

1.000

6.250

0.500

6.375

0.000

30-Year Fixed Rate Mortgage
Loan Amount: $200,000
Lock-in Period: 45 days

Lender B

Rate

Points

6.000

1.375

6.125

0.875

6.250

0.375

Loan Fees: $250

Loan Fees: $600


To get an interest rate of 6.125% lender A would charge you:

$250 + 1.000% * $200,000 = $250 + $2,000 = $2,250

And, lender B would charge you:

$600 + 0.875% * $200,000 = $600 + $1,750 = $2,350

So lender A probably has the better deal

Therefore, it is essential that all the points or factors are considered intelligently before choosing any lender.

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