How to Find the Best Mortgage Lender For Your Situation
People ask Bill, the Bills.com advice columnist, which are the best mortgage lenders. That is the wrong question for two reasons:
- Home loans are a commodity. All US mortgages and deeds of trust are in US currency. A dollar lent at one bank is the same as the dollar at a broker or credit union.
- Every mortgage deal differs based on the borrower’s characteristics, the market conditions, and the lender’s policies, which vary over time.
Banks spend millions in marketing and advertising to convince potential homeowners they are the best mortgage lenders. Is my bank better than the one across the street or the one in the grocery store? The reality is much simpler: The best bank, credit union, or mortgage broker is the one offering you the best deal! Here is how you can find the best mortgage.
Use the table below and the Bills.com mortgage calculator to find the best deal. Or, if you have Microsoft Office Excel installed on your computer, you can create your own amortization schedule by entering the New command, and enter the phrase "Mortgage amortization schedule" in the "Search Microsoft Office Online for a template" box.
The interest rate is the cost of the loan, which is expressed as a percentage. Customarily, there are two types of mortgage loans — fixed-rate and adjustable-rate mortgages.
In a fixed-rate loan, the interest rate remains the same throughout the term of the mortgage for the original borrower. Fixed-rate home loans are available for 30, 25, 20, 15, and 10 years. Generally, the shorter the term of the loan, the lower the interest rate.
Adjustable-rate loans are more complicated to describe because they come in a variety of offers. Generally, an adjustable loan’s interest rate and monthly payments fluctuate over the period of the loan. With this type of mortgage, periodic adjustments based on changes in an index are made to the interest rate. The index used is established at the time of application. These are sometimes known as a renegotiable rate mortgages, variable rate mortgage, and ARMs.
For example, a 5/1 ARM has a fixed rate for the first 5 years. After that, the rate can change once a year during the rest of the loan. A payment-option ARM allows you to choose among several payment options each month. These include principal and interest, an interest-only payment, or a minimum payment. An interest-only ARM usually allows the homeowner to make only interest payments for 3 to 10 years. After interest-only time expires, the payments must include principal.
In the last 50 years, typical mortgage terms were 30 years, with one payment per month. Before that time, loan terms were shorter. Lately, borrowers have returned to shorter-term loans.
The advantage of a longer term is that the monthly out-of-pocket expense is lower than if the term is shorter. The disadvantage of a longer term is that the lifetime interest expense is higher than a shorter term, assuming the same interest rate. As previously mentioned, home loan terms are 30, 25, 20, 15, and 10 years, although there is no reason a borrower and lender could not agree to a different term, such as 23 years.
An origination fee is what the lender charges the borrower for making the mortgage loan. These include processing the loan application, underwriting and funding the loan, and other administrative services. Origination fees are set by lender policy, and may be more than what these services cost. In other words, part of the lender’s profits can be found in origination fees. These may be negotiable or discounted.
Costs are fixed by outside service providers, and include fees that are not negotiable, typically. Costs vary according to your state laws, and include:
- Inspections, such as termite (if required)
- Credit report (it should not exceed $50)
- Recording fees, taxes and stamps
- Prorated tax and insurance escrow
- Hazard insurance (if required)
- Survey and plot plan (if required)
- Title insurance, and related fees to prepare title work
- Environmental protection lien endorsement (if required)
- Closing protection letter (if required)
- Well and septic inspection fees (if required)
Generally, costs do not vary from loan offer to loan offer for the same property. However, if you receive an offer that is considerably higher or lower in costs in comparison to your other offers, that is a reason ask why. Is the lender forgetting a cost that will surprise you later? Or is a lender packing in an unnecessary cost and expects to pocket the fee?
Best Mortgage Lender Deals
Use the table below to compare the offers you receive from lenders.
|Mortgage Lender Comparison|
|Loan 1||Loan 2||Loan 3|
|Monthly principal & interest payment|