The housing market is currently very competitive.

“No kidding, Chad. Thanks.”

I know…you are probably sick of hearing about it, but it is true. Even with the over-abundance of information out there right now, I think it’s important to discuss the situation and give you some tips from my view.

When you decide to buy a home, you will hopefully shop around for a mortgage at more than one financial institution. Once you submit your applications, it is almost certain that you will receive quotes with varying mortgage rates. The question:

Should you automatically accept the lowest available rate, or are there other things to take into account?

Rates are low right now and there are certain things you can do to get a better rate, however, there is more to consider. Let’s have a closer look at what determines the total cost of a home loan.

Home price. 

The more expensive the home you buy, the higher your monthly repayment will be.

Down payment.

The higher the down payment, the lower the amount will be that you have to borrow. A higher down payment typically also qualifies you for a lower interest rate.

Loan amount.

This is the home price less the down payment.

Loan term.

This is how long you will take to pay off the loan. The shorter the period, the higher the monthly installments will be. But with a shorter loan term normally comes a lower interest rate and the total amount you pay over the loan term will be less.

Type of interest rate.

There are two types of interest rates (mortgage rates): fixed and adjustable. A fixed-rate is usually higher than the current going rate, but it will always stay the same. An adjustable-rate might be lower now, but it typically is only locked for a short period of time and then it can adjust at regular intervals based on the market.

Credit score.

Your credit score will play an important role in the interest rate you are being quoted. The worse this score is, the higher the mortgage rate you can expect to pay.

Closing costs. 

These costs are part of all mortgage contracts. They include things like attorney’s fees, application fees, processing fees, and more.

Origination fees. 

These fees are built into the closing costs you have to pay on closing day. Beware that lenders might quote you a more attractive interest rate to make the loan more appealing but then charge you higher origination fees to make up for the lower rate.

Mortgage insurance. 

This is normally required if the down payment is less than 20 percent of the value of the property.

How Does the Above Help You When You Apply For a Home Loan?

Knowledge is power, right? Familiarizing yourself with the terms above and making sure that you understand them is important. If your mortgage broker gets you five different quotes, compare “apples with apples”. If one lender quotes you a lower rate than all the others, immediately check what they charge in terms of closing costs and origination fees.

Also, check whether the rate being quoted is for a fixed rate or an adjustable-rate. A fixed-rate that is 1 percent higher right now might work out much cheaper over 20 years than an adjustable-rate that starts off lower but escalates dramatically when market conditions change.

If two lenders quote you the same mortgage rate, but one of them asks for a significantly higher down payment, talk to the other one. Get a quote for what rate they will charge you if you make the same down payment. If they offer a lower rate you might have yourself a deal.

And if you have an excellent credit score, do not be afraid to negotiate a better deal with the lender you decide to go with.

Conclusion

Do your homework, arm yourself with knowledge, and then use that knowledge to make sure you get the best possible mortgage deal. I am here to answer any questions or to help you through the home buying or refinancing process.