How to find the cheapest mortgage rates

Finding a house and shopping for a mortgage can be an exciting experience. But since there are so many options to wade through, it can be difficult to figure out what kind of mortgage loan will work the best for you and save you the most money. We’re here to help you get started.

How to get the cheapest home loan

• Find the lowest interest rate
• Look for a loan with low fees

• How a bigger down payment affects your mortgage
• A closer look at your repayments
• Bottom line
• FAQs

Find the lowest interest rate

Positioning yourself for the lowest interest rate you’re eligible for is among the best ways to save on your loan. Even a difference of less than 1% can save you thousands over a 30-year mortgage.
When looking for the most competitive rates, consider:

• Variable versus fixed rates. Variable loans tend to advertise lower rates and more flexibility than fixed loans. Consider competitive fixed rate loans without the uncertainty of rising rates.
• Introductory rates. Look out for loans with discounted introductory interest rates. Watch out for fees, and be ready to switch if your rate jumps up.
• Alternative lenders. In a competitive market, you can look beyond big-name banks to see if smaller, nonbank lenders are offering lower rates.
• Negotiating a discount. After you’ve chosen a mortgage, it doesn’t hurt to ask about unadvertised discounts that can shave a few dollars off your loan.

The Federal Reserve indirectly affects interest rates

The Federal Reserve implements monetary policies that can sometimes affect mortgage interest rates, such as its target for the federal funds rate — the rate used by commercial banks to borrow and lend their excess reserves overnight — which can affect variable rate loans, such as adjustable-rate mortgages. Fixed-rate, long term mortgages may not see a direct effect from the federal funds rate, but may be affected by other Federal Reserve policies that impact the cost of credit.

4 strategies to compare mortgage lenders

As you shop around for the right loan, use these tips to help you get the best deal possible:

1. Research lenders thoroughly. Speak to previous customers and read customer and other reviews to learn what to look out for and the lender’s reputation. Determine whether the lender is funded by a larger bank and research the parent company’s reputation.
2. Don’t limit yourself. While online lenders traditionally offer more competitive rates, in today’s competitive market, many big-name and local banks match or even exceed the competitive home loans offered by these cheaper mortgage providers.
3. Use your quote to negotiate. Once you get an interest rate quote from one bank, you can use that as you shop around to negotiate a better rate with another lender. Some lenders even offer incentives if you can find a better deal from another bank.
4. Shop for special programs. Whether you’re a first time homebuyer, a medical professional or are buying in a low-income area, many lenders offer special programs that could lower your down payment and fees and give you a better interest rate than you could get with a more traditional mortgage loan.

Find the best mortgage lender for you

Get started

Get a loan with low fees

Most mortgages come with fees separate from your interest rate and repayments. They’re often calculated into a loan’s comparison rate. Upfront, one-time fees — like origination or application fees — can sound expensive. But smaller, ongoing fees often cost you more in the long run.

Should I avoid fees at all costs?

Not always. To find out how much a loan will cost you, you need to crunch the numbers. If a loan has a low rate and features you need, then it might be worth paying a small ongoing fee.
Some fees come due only at the end of the loan or when switching lenders. Keep this in mind if you’re planning to refinance your mortgage for a lower rate or shorter term down the road.

Save up a healthy down payment

Most mortgages require a down payment of 5% to 20% of your property’s value. Generally, the bigger your down payment, the less you’ll need to borrow to cover your home’s purchase price.
It pays to save up as much as you can for your down payment. You’ll not only land lower monthly repayments, but if you put down less than 20% of your property’s value, you’re also required to pay private mortgage insurance — or PMI — on top of your loan.
In some cases, a bigger down payment of 30% or more can unlock lower rates, though that kind of upfront payment may be unrealistic for many first-time homebuyers.

Take a closer look at your repayments

Your repayment structure greatly affects the cost of your mortgage or home loan. Loans on which you’re repaying your principal and interest result in bigger monthly repayments, though they’re often cheaper in the long run.
Interest-only loans tend to result in much cheaper repayments during the interest-only period but higher repayments afterward — which costs you more over time.

Shorter loan periods

The faster you pay off a mortgage, the less interest you pay over time. So even though repayments for a 25-year home loan might look high compared with those of an identical 30-year home loan, you’ll likely save more with the shorter loan.
Here’s what you’d end up paying for a $400,000 mortgage over 25 years and 30 years at 5% interest:

A 25-year mortgage requires higher repayments, but it’s cheaper in the long run because you’d pay less interest.

Bottom line

A mortgage is a big commitment. But by knowing what to look for, find the cheapest rates, lowest fees and best terms on your home loan, potentially keeping thousands in your pocket.
Image: Shutterstock