Buying a house is an expensive transaction, so you want to be sure you get the best home loan rate possible. That means doing some comparison shopping before you settle on a mortgage company in order to ensure that you are getting the best rate possible.
The research process
Since home loan rates tend to be tied to so many more factors than a standard secured loan, it's more difficult to research. The only inhibiting factor is that an application fee is required with the application, so you do not have the luxury of submitting applications and choosing the one that offers the more lucrative deal. Some mortgage companies do advertise no application fee, but that is not the normal process.
It is still possible to conduct research, it will just mean you have to ask more questions and provide potential lenders with sufficient information for them to give you an honest evaluation. This may mean working with the first lender and getting their offer, and then taking their assessment to see if you can obtain a better home loan rate.
The importance of comparison
With the cost of the average home being well into the six-figure range, it is a financial travesty to accept the first quote that you receive. Even a difference of .25 percent on a mortgage of that amount can save a substantial amount in the future value of the loan.
In addition, if the difference is high enough, it may even reduce the monthly payments to a more manageable level. The difference in the home loan rate also affects the pre-paid interest that is due at the time of closing, so there are many different ways that one can save money by shopping for the best home loan rate. After all, this is not a credit card that you can cut up and return if the interest rate goes up.
Be careful of variable rate mortgages
Although the lower home loan rate on a variable rate mortgage sounds attractive in the beginning, you have to look at the extended term as many of these have provisions for raising the interest rate as much as two percent per year until the maximum rate is reached. If the rate increase causes your payments to rise higher than your income can support, you will find yourself in trouble.
These types of mortgages were more popular in the 80's and 90's when home loan rates were much higher, but that does not mean that some people will not still find them attractive. They are based on the assumption that a homeowner's income will increase on an annual basis, but sometimes that either does not happen, or is so minimal that it is not really noted in the family income.
Avoiding the high interest trap
When shopping for a home loan rate, keep in mind that this market is volatile and is directly tied to trends in the housing market as well as the economy as a whole. If the home loan rate you desire is not available now, and you are willing to wait to purchase a home, they will decrease based on the economy.
On the other hand, if your income level needs a tax shelter in the form of a real estate investment, there is no time like the present to make that choice and still shop for the lowest home loan rate. If you research and plan correctly, you will have no trouble finding a home loan rate that is competitive in the financial market.