The idea of shopping around for a mortgage can be daunting. After all, there's so much paperwork associated with applying for one mortgage, who would want to go through the process multiple times? However, the fact is that if you don't shop around for your mortgage, you're doing yourself a huge disservice. We've laid out the reasons for you below. Read them over to learn about the benefits of being a discerning consumer.
Rates are always changing
If you've started thinking about getting a mortgage, you've probably been bombarded with conflicting messages about interest rates. On the one hand, you've probably heard that interest rates are rising. On the other, you may have also heard that rates are still near historic lows. In reality, both those statements are true, but if it seems like the news about mortgage interest rates is constantly changing, that's because it is.
Believe it or not, mortgage interest rates change daily. Like stocks, it all has to do with the strength of the economy. In strong economies, where people are more likely to buy a home, it costs more to borrow money, on both your end and the banks'. In weaker economies, rates dive lower in order to provide an incentive for people to borrow.
When you buy, your aim should be to borrow at the lowest possible interest rate. Doing so will save you money over the life of your loan. Shopping around for a mortgage will give you an opportunity to keep an eye out for the best rates as they fluctuate from day to day.
Interest rates add up
That said, though mortgage interest rates have a tendency to fluctuate, they rarely go up or down by more than a fraction of a percentage point over the course of a few days. Unfortunately, a movement that small leads many buyers—especially first-timers—to get complacent because they're unaware of how much of a difference just a fraction of a percentage point can make.
The reality is, a difference of half a point (or even less) can add up to thousands of extra dollars spent over the term of the loan. For example, let's say you bought a $200,000 house and put 20% down on a 30-year loan. With an interest rate of 3.5%, your monthly payment would be approximately $719 dollars. However, if that interest rate were to jump to 4.5%, your new payment would be approximately $810.
At first glance, a difference of $100 a month may not seem to make that big of an impact on your monthly budget. However, when you think about the impact of those numbers long term, they add up. For a one-point difference, you'll end up paying more than $35,000 in added interest over the course of the 30-year loan.
It won't impact your credit
Many times, buyers are hesitant to shop around for a mortgage rate because they worry that doing so will negatively impact their credit. While this used to be true, fortunately, it is no longer the case. These days, the major credit bureaus have agreed to treat all mortgage inquiries as one, as long as all of the inquiries occur within the same period of time.
The catch here is that the acceptable period of time varies. It lasts between 30 and 45 days, depending on the credit bureau. With that in mind, while you can shop around as much as you'd like during that time, it's best to stick closer to the 30-day mark so that you know you're covered.
Everyone's fees are different
The last factor to consider is the fees associated with your mortgage. Most loans come with origination fees and points. Origination fees are used to cover the costs associated with closing the loan, including compensating the loan officer. Points, on the other hand, are an additional fee that you can pay to the mortgage company in exchange for a lower interest rate.
As with any other industry, each lender will have their own fee structure. Points are often optional and, in some cases, you can negotiate with the lender to have certain fees waived or discounted. Shopping around for a mortgage will allow you to find the fee structure that works best for you and your wallet.
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Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917