Shopping For Mortgage Rates & Loan Costs

Turbo Mortgage will help you understand your most suitable mortgage options. When you work with Turbo Mortages, you’ll know you’ve selected from among the best, most-suitable loans available to you. Next, you can focus on loan terms.

What Is Your Mortgage Rate?

It’s common for mortgage applicants to want to “shop by rate”, and it’s okay to choose the loan with the lowest, most-attractive interest rate. However, never shop on just interest rate alone. Getting the lowest rate on the “wrong loan” can cost you far more in the long-run, and the lowest rate isn’t always best. Consider the obvious example of the 15-year fixed-rate mortgage. Mortgage rates for 15-year mortgages are lower than mortgage rates for 30-year loans, historical, but because payments are compressed into fewer years, the monthly payment is much, much higher. Similarly, it’s unwise to shop by APR only. Why is it unwise to shop by APR only?  APR is a government calculation meant to show the long-term cost of mortgaging a home. However, it’s an easily manipulated figure which is often misleading to borrowers. Often, it’s best to ignore APR altogether.

APR Is Not An “Apples-To-Apples” Comparison Tool

Banks and lenders love to promote their “low APR loans” — especially online. In fact, most online mortgage marketplaces sort their quotes by APR showing quotes with the lowest APR first, followed by loans with higher APR. This can be misleading. Getting a low APR doesn’t necessarily mean you’re getting a good deal. Here’s why.

When your calculating an APR, your lender is estimating your long-term cost on your loan. In order to make that estimate, the lender has to predict the future, while making drastic assumptions about what may or may not happen.
Here are three such assumptions :

• The APR formula assumes that you will hold your loan for 30 years
• The APR formula assumes that you will never make an extra principal payment
• The APR formula assumes that you will never refinance or sell your home

For loans with private mortgage insurance (PMI), the APR formula makes an assumption for the specific month-and-year that your home will reach twenty percent equity and your PMI will go away. This is impossible and it’s for these reasons that Annual Percentage Rate fails.

A better way to look at mortgage rates, then, is to consider them within in the context of your loan’s other traits. Low rates and good terms is what you’re after — not one or the other.

How Much Are Closing Costs?

Getting the lowest rate on a mortgage isn’t the only factor in getting a “good deal”. Sometimes, the lowest rate loan can be the worst deal because in general, lower mortgage rates are linked to higher fees.
You may get a low rate that does not offset the money if the terms have you paying an inordinate amount of mortgage closing costs. To be fair, there are some scenarios where paying “big fees” will make sense, but the typical homeowner moves or refinances in fewer than seven years, which means paying high costs is a gamble. Turbo Mortgage can help you understand the math and the trade-offs. Don’t be afraid to ask. We welcome such questions and will take the time required to help you understand your choices.