by Cody Connolly
on Wednesday, January 9th, 2019 at 11:43am.
1) Just Look for who has the Lowest Rate!
Getting a low interest rate by itself means very little. Virtually every bank or lender can offer any interest rate, but the difference is made up in the cost or “points” associated with each rate. For example, if we look at a sequence of interest rates, you have the option to select the rate based on the cost or credit associated with it.
4.25% -$2,000 Cost or “Points”
4.375% -$1,000 Cost or “Points”
4.5% $0 Cost or “Points”
4.625% +$1,000 Credit or “Points-back”
4.75% +$2,000 Credit or “Points-back”
2) Closing Costs are Expensive.
Now I’m not going to completely put this in the category of “myth” as the closing costs can certainly be expensive, but they can often appear to be more expensive than they actually are.
There are two different categories of closing costs which are one-time closing costs and reoccurring closing costs:
One-time closing costs come from title and escrow fees, title insurance, underwriting fees, and lender fees.
Reoccurring closing costs are things such as your home insurance, property tax, and mortgage interest which you will often pay for upcoming months at closing. The amounts will vary depending upon the time of year and time of month you close your loan. The reason that this can seem more expensive than it actually is is that things like property tax and insurance contribute to your monthly payment amount, but you are just paying for a portion of those costs up front at closing.
3) Get the Rate with No Points!
The strategy of selecting your interest rate depending on your personal situation.
*If you are an individual who has a lot of cash reserves above and beyond what you want to use for your downpayment, it will typically be best to get the interest rate with no “points” and no “credit” and pay for closing costs with additional money you have outside of your downpayment.
*If you are using most of your money for your downpayment, it might make sense for you to go with an interest rate that is slightly higher but provides a credit to cover some or all of your closing costs.
4) You Should Just Go with your Bank.
While large banks may have the lowest cost option, more often than not, there are options that are available to you that will be less expensive than what your bank will offer you. While I certainly appreciate loyalty, if there is an option for you to save even a few hundred dollars, it can become tens of thousands of dollars when you look at the lifetime cost of an interest rate.
5) Speed to Close isn’t Important.
It can be easy to overlook the importance of speed to close. However, this will give you an edge when making offers in a competitive market, as a 30+ day close can often be longer than sellers are willing to wait. In addition, if you miss your deadline after going into contract you could be at risk of losing the home and being forced to give up your deposit. For highly efficient lenders, 14-day closes are not uncommon with the use of technology.