10 Ways to Lower Your Mortgage Payment

A high mortgage payment can account for a large majority of your income, leaving you with very little to cover the rest of your regular living expenses each month. It's best to keep your mortgage costs low and under 30 percent of your take home income so you won't feel a financial strain each month. If you're wondering how to lower your mortgage payments each month, there is more than one way to achieve that goal.



If you feel like your monthly mortgage is too high, here are 10 ways to reduce your mortgage.

1. Extend Your Repayment Term
A simple way to lower your mortgage payment is to extend your term (which is also referred to as re-casting or re-amortizing) if you can. You don't even need to refinance your mortgage to do this because most lenders will simply offer this service for a fee of about $250.

If you extend your 15- or 30-year mortgage to a 40-year mortgage, your monthly mortgage payment will decrease since you have more time to pay back your loan by stretching out the term. While you may pay more interest on your mortgage over time with this option, it's best for borrowers who need an immediate solution and may consider refinancing their mortgage in the future.

2. Refinance Your Mortgage
If you do choose to refinance your mortgage, it is one of the best ways to help ensure you lower your mortgage payment and your interest rate so you can pay less in interest over the life of your loan. You must have good credit to refinance, but you can utilize our refinance calculator to estimate how much you can save and how your mortgage payment would be decreased by.

3. Make a Larger Down Payment
If you are still in the market for a home, consider putting a large down payment down in order to keep your monthly mortgage low. While it's best to put at least 20 percent down, if you aren't in an immediate hurry to buy, see if you can set aside even more.

The more you put down on your home, the lower your mortgage will be. And if you put at least 20 percent down, you won't have to pay private mortgage insurance which will save you quite a bit of money as well.

4. Get Rid of Your PMI
If you bought your house and put down less than 20 percent of the purchase price as a down payment, you are probably paying mortgage insurance on top of your regular mortgage payment which can add tens or even hundreds of thousands of dollars to the overall cost of your home loan.

The good news, however, is that you can get rid of PMI. First, you have to repay enough of your mortgage so that you gain at least 20 percent equity in your home. Then, you can request your lender drop your PMI. Your lender may send an appraiser to your property to verify how much equity you have in your home before getting rid of the PMI, but either way if it is removed, your mortgage payment will be lowered.

5. Have Your Home's Tax Assessment Redone
If your home loan has an escrow, property taxes may take up a noticeable chunk of your mortgage payment each month. Property taxes are based on each county's tax assessment of how much your home or land are worth. Some homes in urban areas are overvalued causing the taxes to be high. The assessment is different from an appraisal since it is conducted by your county for tax purposes only.

As a homeowner, you can request to have the assessment done again or protest it by filing with your county and requesting a hearing with the State Board of Equalization. If the protest is approved, your homeowner's taxes will decrease along with your monthly mortgage payment.

6. Make Extra Payments Toward the Principle
If you'd rather see your mortgage payments decrease later instead of instantly, you should actually consider making extra payments on your mortgage each month. Like with all debt that has an interest rate, the more you put toward the principal balance, the sooner you pay the debt off and in the meantime, your extra payments can help reduce what you owe in the future.

If you can manage to make double payments each month for a year, you'll reduce the principle balance of your loan, pay less in interest, and possibly gain more equity in your home so you can drop PMI if you have it.

Making extra payments isn't always easy, but if you have a dual-income household, or receive any gift money or bonuses at work, you can certainly try to achieve that goal.

7. Choose an Interest-Only Mortgage
When you get a mortgage, some lenders don't require you to begin paying off your balance right away and will offer you an interest-only loan. Interest-only (I/O) mortgages occur in two stages: the first phase, where you only pay the interest on your mortgage and the second phase, where you pay off the actual principal balance plus interest.

If you have a 30-year mortgage and spend the first five years paying only interest, your monthly payment may seem pretty low, but you must pay off the rest of your mortgage in the remaining 25 years. I/O mortgages are a temporary way to lower your mortgage payments and can work out as long as you plan to increase your payments after the interest only phase is up.

8. Pay Your PMI Upfront
When you close on your home, you'll have the option to pay your private mortgage insurance upfront if you didn't put 20 percent down. Instead of having to pay extra on your mortgage year after year, you can just take care of PMI by paying a one-time fee.

This is why it's important to budget for extra expenses associated with buying a home and have plenty of savings set aside so you can make money-saving decisions like this. You may not have enough in your bank account to make a 20 percent down payment, but you may be able to cover your mortgage insurance.

9. Rent Out Part of Your Home
If you have the extra space, having a tenant can greatly reduce the cost of your monthly mortgage payment. If you have an extra bedroom, basement, or addition on your home, consider renting space out to a friend or trusted tenant who can pay you rent each month.

Even if it's just $300, that will help knock your mortgage payment down quite bit if you can't refinance or utilize some of the other options just yet.

10. Federal Loan Modification Programs
If you're undergoing a financial hardship and need to reduce your mortgage payment as a result, there area few federal loan modification programs to choose from. They can be available through your lender and you must meet certain eligibility requirements in order to reduce your mortgage payments short-term or long-term.

If you are having trouble paying your mortgage, talk to your lender and explore all of these options mentioned above to see which solution will help improve your situation.

7 Easy Ways to Trim Your Mortgage Costs

As with most homeowners, your mortgage payment is probably your largest monthly expense. Wouldn’t it be nice to trim this huge cost and perhaps shorten the life of your loan? We have listed seven tips below to help save you money on your mortgage.



[In Pictures: The Worst States for Millionaires.]

The tips below are based on this hypothetical mortgage example (savings will vary based on your actual loan facts and timing of the change):

$200,000 mortgage
30-year fixed rate mortgage
6 percent interest rate
$1,199 monthly principal and interest payment
1. Add One Extra Payment Each Year

Perhaps the easiest way to save money on your mortgage is to make an extra mortgage payment each year. These extra payments are automatically applied on your principal, not interest. Not only does your remaining balance drop, but you will not have to pay interest each month on that principal for the remainder of the loan term.

Savings: $47,000. By making one extra payment of $1,199 each year and applying it to your principal, you could save over $47,000 in interest and cut 5 years off the life of the loan.

2. Set up Bi-Weekly Payments

Another trick to pay off your loan early is by creating a bi-weekly payment plan. Put half of your monthly mortgage payment in a savings account every other Friday (or, on your pay day). Each month, pay your mortgage from the account. At the end of the year, you will have made 26 half payments, which is 13 full payments. This will leave with you an extra payment that you can put toward your principal. Most people manage the separate accounts themselves, but there are companies that you can hire to act as an escrow service and manage the payments for you. Beware that they could charge you for this service.

Savings: $47,000. Same as extra payment.

3. Get Rid of Your PMI

If your down payment was less than 20 percent, you were probably required to pay private mortgage insurance (PMI). However, you can petition your lender to cancel the insurance as soon as your mortgage balance falls below 80 percent of the home’s appraised value. This can happen if your home’s value has gone up or you have repaid some of the principal. This may require a new appraisal but could shave hundreds of dollars off your monthly payment.

Savings: $130 per month. If you only put down 5 percent and had a PMI rate of .78 percent, you could save $130 per month.

4. Reduce Your Assessment

Property taxes can cost thousands of dollars a year. If you think your home’s value has decreased in the last year and it was not properly accounted for in your tax assessment, you can petition your assessor and fight your assessment. Lowering your tax assessment will lower your yearly taxes.

Savings: Varies. Depends on your local tax rate and home adjustment, but could be hundreds of dollars a year.

5. Reset Your Mortgage

This is not commonly known, but some lenders will reset (recast) your monthly payment if you make a large payment towards the principal of your mortgage. Your monthly payment stays the same, but the term of your loan shortens. When the loan is recast, your monthly principal and interest is recalculated so you end up with a lower monthly payment over the existing term of the loan.

Savings: $120 per month. Putting $20,000 into the loan would reset the payment to $1,079, saving you $120 per month.

[See 10 Smart Ways to Improve Your Budget.]

6. Modify Your Loan

If you are late on your payments and are going through a financial hardship, you may be eligible to modify terms of your loan (such as rate, term, or principal balance) to make it more affordable. The goal of these programs is to allow borrowers to stay in their homes and continue making their monthly payments. Not everyone qualifies for these types of programs, but if you do, they can save you a lot of money. To find out if you qualify, contact the servicer of your mortgage or visit the Making Home Affordable eligibility site.

Savings: Varies. It can reduce your interest rate to as low as 2 percent, extend your term to 40 years, or reduce your principal.

7. Refinance

Lastly, the most common way to save money on your mortgage is by refinancing to a lower interest rate. Reducing your rate can lower your monthly payment and help you save on interest payments. However, there are costs associated with refinancing so you want to be sure you are going to save enough to cover the refinancing fees. With rates at historic lows, if you can refinance, and you haven’t already, you should consider it.

Savings: $126 per month. By lowering your interest rate to 5 percent, you would have a payment of $1,073 which would save you $126 per month. If the refinance costs $5,000, you would recoup the fees after 40 months.

Nate Moch is a mortgage correspondent for Zillow Blog, a resource for real estate and mortgage news.

Finding the Best Mortgage Rates in 2017

Buying a home may be the biggest and most important financial decision of your life, and will likely require a mortgage to fund the purchase. As home-buying technology has progressed, the process of finding the best mortgages rates can all be done online – with handy instruments like the mortgage calculator tool below. This sort of calculator is a good way to familiarize yourself with the mortgage market in your area – the types, terms and rates available.




Ah, but knowing the numbers is just Step One. You should also understand what influences them and whether they represent a good deal for you, or not. So after you calculate, read on to understand the different categories of mortgages, plus some shopping tips on how to snag a quality loan.

Finding The Best Mortgages with Our Calculator
The calculator comprises multiple factors to help you narrow the options best suited for your specific needs. You can compare payments between short and long contracts, evaluate a lower initial interest rate on an adjustable-rate mortgage (“ARM”) versus a more traditional fixed-rate option, or whether an interest-only (“I-O”) mortgage makes the most sense for you.

Below is a list of terms you're likely to encounter as you use the mortgage calculator:

Credit Score: The credit score is the numeric expression of a person’s creditworthiness.

Location: You must select the state in which the mortgage will be taken out, and then narrow the location by either the closest city or ZIP code.

Loan Amount: This would be the equivalent of the estimated value of the home or the remaining balance on your incumbent mortgage that you would like to refinance.

Mortgage Points: A mortgage point is equal to one percent of the total amount of a mortgage. There are two types of points: discount points, which represent prepaid interest on a mortgage; and origination points, which are a fee the mortgage lender may charge a borrower.

Percent Down: Also known as a down payment, or an initial payment made when something is bought on credit.

Products: The type of mortgage you are interested in, such as a traditional fixed-rate mortgage, an ARM, or an I-O mortgage. The ARM option shows a ratio such as "7/1”, which represents the number of years the mortgage carries a fixed interest rate. After the pre-set number of years (in this case, 7), the interest rate adjusts once a year (the 1) for the remaining term of the loan, according to three factors: the level of the index that the mortgage is tied to, such as the LIBOR; the ARM Margin established at the onset of the loan; and the Mortgage Cap.

Purchase or Refinance: Purchase mortgages are used to finance the purchase of a home. Refinances are used to replace an older loan with a new loan offering better terms, for a fee.

Types of Mortgages: Can You Get the Best Rate?
Depending on factors such as your credit score, employment history and debt-to-income ratio, the calculator may have come up with – and a lender may offer you – a prime rate mortgage, a subprime mortgage or something in between, called an “Alt-A” mortgage. Let’s take a quick look at the different mortgage categories and see what affects what you qualify for.

Prime Mortgages
Prime mortgages meet the quality standards set forth by Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation), the two government-sponsored enterprises that provide a secondary market in home mortgages by purchasing loans from originating lenders. According to the Federal Reserve, a prime residential mortgage is “a mortgage for a borrower whose credit scores are 740 or higher, whose debt-to-income ratios are lower than average and whose mortgage features the standard amortization schedule common to a fixed-rate or an adjustable-rate mortgage.”

Candidates for prime mortgages also have to make a considerable down payment – typically 10% to 20% – on the residence, the idea being that if you’ve got skin in the game you’re less likely to default. Because borrowers with better credit scores and debt-to-income ratios tend to be lower risk, they are offered the lowest interest rates – currently about 4% for a 30-year fixed rate mortgage – which can save tens of thousands of dollars over the life of loan.

Subprime Mortgages
Subprime mortgages are offered to borrowers who have lower credit ratings and FICO credit scores below about 640, though the exact cutoff depends on the lender. Because of the increased risk to lenders, these loans carry higher interest rates – such as 8% to 10%.

There are several kinds of subprime mortgage structures. The most common is the adjustable-rate mortgage (ARM), which charges a fixed-rate “teaser rate” at first, then switches to a floating rate, plus margin, for the remainder of the loan. An example of an ARM is a 2/28 loan, which is a 30-year mortgage that has a fixed interest rate for the first two years before being adjusted. While these loans often start with a reasonable interest rate, once they switch to the higher variable rate the mortgage payments increase substantially.

Alt-A Mortgages
Alt-A mortgages fall somewhere in between the prime or subprime categories. One of the defining characteristics of an Alt-A mortgage is that it is typically a low-doc or no-doc loan, meaning the lender doesn’t require much (if any) documentation to prove a borrower’s income, assets or expenses. This opens the door to fraudulent mortgage practices, as both lender and borrower could exaggerate numbers in order to secure a larger mortgage (which means more money for the lender and more house for the borrower). In fact, after the subprime mortgage crisis of 2007-08, they became known as “liar loans,” because borrowers and lenders were able to exaggerate income and/or assets to qualify the borrower for a bigger mortgage.

While Alt-A borrowers typically have credit scores of at least 700 – well above the cutoff for subprime loans – these loans tend to allow relatively low down payments, higher loan-to-value ratios and more flexibility when it comes to the borrower’s debt-to-income ratio. These concessions enable certain borrowers to buy more house than they can reasonably afford, increasing the likelihood of default. That being said, low-doc and no-doc loans can be helpful if you actually have a good income but can’t substantiate it because you earn it sporadically (for example, if you’re self-employed).

Because Alt-As are viewed as somewhat risky (falling somewhere between prime and subprime), interest rates tend to be higher than those of prime mortgages but lower than subprime – somewhere around 5.5% to 8%, depending on the lender and the borrower’s situation. See Alt-A Mortgages: How They Work.

Getting the Best Possible Mortgage Deal
Obviously, the higher the interest rate, the more you pay each month, and the more you ultimately pay for your home. To compare, let’s take a look at a 30-year fixed-rate mortgage for $200,000.

At the prime rate – 4% in this example – your monthly payment would be $955. Over the life of the loan, you would pay $143,739 in interest – so you’d actually pay back a total of $343,739.

Now assume you get the same 30-year fixed rate mortgage for $200,000, but this time you are offered a subprime rate of 6%. Your monthly payment would be $1,199, and you’d pay a total of $231,677 in interest, bringing the total amount you pay back to $431,677. That seemingly small change in interest cost you $87,938.

What’s important to realize is this: Just because a lender offers you a mortgage with an Alt-A or subprime rate doesn’t mean you wouldn’t qualify for a prime-rate mortgage with a different lender. Lenders and mortgage brokers may be competitive, but they generally are under no obligation to offer you the best deal available. It’s well worth the effort to shop around: Taking the time to find a better interest rate can save you tens of thousands of dollars over the course of a loan.

Tips for Finding The Best Mortgage Rates
This is not the time to let somebody else do the shopping for you. As we saw just now, the terms you get can make a sizable difference in what you pay to borrow the same amount of money.

How do you avoid paying more than you need to for your mortgage? Certainly, compare the offers you get by running them through your online mortgage calculator to see what your payments and interest will be. And as you do – or even before you do – follow the steps below.

1. Start Preparing Early

If you’re looking for a home right now, getting your finances in great shape may be tough. So try to think ahead; maybe even postpone house-hunting until you can clean your financial house.

In general, you need outstanding credit. (See What Is A Good Credit Score?) Before you’re even considered for a mortgage, conventional lenders will look for a credit score of at least 700 and, as we said above, one of 740 for a prime rate mortgage. FHA loans come with more relaxed standards, but more stringent conditions. So do what you can to get that score up by paying off those credit card balances and other personal debts, to the extent you can.

Even a 20-point difference in your score could move your rate up or down more than 0.25%. On a $250,000 home, one-quarter of a point could mean an extra $12,000 or more paid in interest over the life of the loan.

Second, save up! The more you can put down, the lower your mortgage payment and the less interest you’ll pay over time. A higher down payment could even mean a lower interest rate. Coming up with a 30% down payment (vs. the conventional 20%), for example, could drop your rate more than 0.5%.

2. Don’t Look at the Interest Rate Alone

The interest rate is important, but there’s more to compare. Is there a prepayment penalty if you decide to refinance at some point? What are the total closing costs? Closing costs generally amount to 2% to 5% of the price of the home. If your home costs $150,000, expect to pay $3,000 to $7,500 in costs. That’s a big range, so it behooves you to see what a lender typically charges.

3. Understand PMI

Though they do count towards the overall cost of your mortgage, closing costs are a one-time hit. But there's another bite that keeps on biting. If your down payment is less than 20%, you’re considered higher risk, and required to carry PMI, or private mortgage insurance. This makes you a safer bet for the lender; trouble is, you're the one paying for it, to the tune of 0.5% to 1% of the entire loan each year. That can add thousands of dollars to what it costs to carry the loan. If you do end up having to pay for PMI, make sure it stops as soon as you've gained enough equity in your house through your mortgage payments to be eligible (see How To Get Rid Of Private Mortgage Insurance).

4. Lock and Load

Let’s say you get the most amazing mortgage deal. Congratulations, but move fast. The interest rate – and possibly other conditions – are locked in for a set amount of time. You have to close within the lock period or risk losing the deal. Don’t procrastinate.

The Bottom Line
Most of the work involved in getting the lowest mortgage rate happens long before you’re ready to apply. A stellar credit score and a sizable down payment are the best ways to lower your rate.

But don’t blindly trust your bank, realtor or mortgage broker to get you the best terms. They may have a financial incentive to steer you in a certain direction. Do your own shopping, mortgage calculating and comparing. Also, remember that just because you qualify for X amount of mortgage, there’s nothing that says you have to borrow that much.

Shopping for Mortgage Rates

If buying a home might be the largest single investment you ever make, the mortgage you need to finance it will probably be the biggest debt you ever assume. A mortgage is a long-term financial obligation, and the mortgage rate you pay substantially affects the overall cost of your new residence. A 0.5% difference in interest rates (which determines the size of your monthly payments), for example, can save or cost you tens of thousands of dollars over the life of a loan.

So, it makes financial sense to shop around for the lowest rate you can qualify for. Here are the six steps to take.

1. Get Your Credit Score
Lenders will use your credit score to help determine if you qualify for a loan and what rate you'll be charged. In general, the higher your credit score, the better the terms you'll be offered. It's a good idea to get a copy of your credit report at least six months before you plan on obtaining a mortgage so you have time to find and fix any errors (your own credit inquiry should not count against your credit score).

Once you start shopping, each lender you contact will want to pull your report. While you may have heard that it will lower your credit rating each time a lender makes an inquiry, credit agencies recognize that mortgage-related queries result in a single loan (and not multiple new lines of credit), so they'll cut you some slack – provided you can do your loan-hunting within a focused period. The FICO score, for example, disregards multiple inquiries when they happen within a 45-day window; other agencies have a 14-45 day window.

2. Consider Mortgage Types
Before you shop, determine how much you want to borrow, which type of mortgage you want and how long a term you need so that you can fairly compare lenders. Mortgages fall into two basic types: government-backed and conventional.

Conventional loans, which represent around 65% of all mortgages issued, are offered by private lenders (thrift institutions, commercial banks, mortgage companies and credit unions); depending on their size and criteria, they may also be guaranteed by the federally-sponsored agencies Fannie Mae and Freddie Mac.
Government-backed loans are also obtained through private lenders, but they are insured, either completely or partially, by the U.S.. government. These typically have less rigid borrowing requirements with low down payments, lower credit expectations, and more flexible income requirements. However, they must be the borrower's primary residence and must be owner-occupied (no investment or rental properties). Aimed at first-time or low-income buyers – though anyone can apply – the best-known of these mortgages are FHA loans, backed by the Federal Housing Administration.
Also to consider: what the nature of the financing you want. Again, these fall into two basic categories:

Fixed-rate mortgage. A fixed-rate (or "plain vanilla") mortgage is a loan that has a set – that is, the same – rate of interest for the entire term, allowing you to spread out the costs of your home purchase over time while making predictable payments each month. Fixed-rate loans are ideal for buyers who have steady sources of predictable income and who intend to own their homes for extended periods of time.
Adjustable-rate mortgage (ARM). An adjustable-rate mortgage (also called variable-rate or floating-rate) is a loan with an interest rate that changes periodically, usually in relation to an index. The introductory or teaser rate is often lower than the rate available on a fixed-rate mortgage, but the rate may change at any time after the introductory period, resulting in sometimes sizable increases in your monthly mortgage payment. Adjustable-rate loans are typically the recommended option for buyers who anticipate declining interest rates (to avoid being locked into a higher rate), who plan on living in the home for a limited number of years or who expect to pay off the loan before the interest-rate adjustment period is reached.
3. Contact Several Lenders
Shop online, by phone or in person. To find lenders and look up rates, try our mortgage calculator tool:

Keep in mind that loan officers get paid off of the transaction that you make. That doesn't make loan officers bad people; it just means that you should do a little work on your own to make sure you understand the full variety of available options in the marketplace and the pros and cons of each of them.

You can also work with a mortgage broker who, for a fee, finds a lender for you and arranges the transaction (note: brokers will contact multiple lenders on your behalf, but they are not obligated to find the best deal for you unless they are under contract to act as your agent). They are also paid a fee by the lender in exchange for bringing business to that lender. Some financial institutions act as both lenders and brokers; it's important to find out if the institution is getting a broker involved – so ask if you're unsure.

4. Add in the Additional Costs
The lowest advertised interest rate you find may not necessarily be the best option: You have to look at fees, since they can significantly drive up the overall cost of a mortgage. In general, a mortgage with higher fees will have a lower interest rate, but it's important to ask about loan origination or underwriting fees, broker fees, and settlement or closing costs. Some fees are paid when you apply for a loan (i.e.., the application and appraisal fees), while others are settled at closing. Ask the lender which fees you will be charged and what each fee covers. Ask not just about immediate ones, but potential ones down the road, like prepayment penalties.

Points are fees paid to the lender (or broker) and are typically linked to the interest rate: The more points you pay, the lower your interest rate. One point costs 1% of the loan amount and reduces your interest rate by about 0.25%. To find out how much you'll actually end up paying, ask for points to be quoted as a dollar amount instead of just the number of points. In general, people who plan on living in a home for a long time (10 or more years) should consider points to keep interest rates lower for the life of the loan. Paying a lot of money up front for points may not be worth it if you plan on moving in a shorter amount of time.

5. Negotiate
By law, lenders are obligated to provide a Good Faith Estimate (GFE) of the total closing costs associated with a mortgage, including information about total monthly expenses (seeing the out-of-pocket dollar amount per month can be a highly useful and understandable way to compare costs). Some loan programs require mortgage insurance premiums for all applicants regardless of down payment amount, and this information is listed on a GFE for easy comparison. GFEs require lenders to accept the loan application as long as the applicant meets the criteria provided by the lender. This document is not a loan offer, but it does obligate the lender to accept the applicant under the terms listed if the applicant has the available funds and credit approval required. Generally, part of the application information will be validated before the lender will offer a GFE. GFEs provide a way for the applicant to review a summary of the financial terms of a mortgage loan and compare offers from multiple lenders and multiple loan programs. This document does not require the applicant to apply for a loan and does not obligate the applicant to anything besides the provision of truthful information.

Once a lender has made you an offer, you may be able to bargain for better terms. Ask the lender to write down all the costs associated with the loan – interest rate, fees, points – and then find out if it will waive or reduce any of the fees or offer you a lower interest rate (or fewer points). If you are already a client of the lender's, definitely make that known – or ask if doing other business with them would make a difference. Bank of America Corporation, for example, offers reduced fees based on the amount a customer keeps in a Bank of America banking or Merrill Lynch investment account.

You can also get a little competitive spirit going, asking if the lender will match the terms than you've found elsewhere. Mortgage companies are constantly battling one another for the finite business out there. Particularly during down markets when fewer buyers are there for the taking, lenders frequently slash fees to get customers on board. A customer who shops around with multiple lenders and lets each know it is competing with several others stands a good chance of paying lower mortgage fees than a customer who does business with the first lender that calls.

Once you are happy, ask for a written lock-in that includes the rate you agreed upon, the number of points (if any) to be paid the period and the period the lock-in lasts. Most lenders charge a non-refundable fee for locking in the interest rate and points, but given the speed bumps that can occur on the road to approval, it may well be worth it.

6. Get It in Writing
Once you decide to go with a lender, finish the application and obtain a pre-approval letter. This is much more thorough than a GFE – but more of a commitment as well. Pre-approval is only given after all income verifications, credit checks, funding is secured, and all necessary information has been validated and accepted by the lender. Pre-approval letters are offers to loan money and are legally binding upon the lender; they can be revoked or substantially changed only if the borrower does not meet the full terms of the agreement to loan. A potential buyer having a pre-approved mortgage provides the seller and other interested parties with official proof of the mortgage offer and intent of the lender to loan money. This document allows the purchase or refinance of property to move forward.

Picking the Best Rate
Even before you actually contact any lenders, you can get a sense of what they're offering via a digital search and the use of a mortgage rate calculator (see Finding the Best Mortgage Rates). Interest rates fluctuate, and different lenders may offer promotions for certain loan products. To keep the comparisons apples to apples, provide each lender with the same information and make sure you are asking about the same loan: for example, a $250,000 30-year fixed-rate mortgage with no points.

Remember to compare the total dollar amounts of different-length terms, too. A 15-year mortgage may have a higher interest rate and monthly payments, but cost significantly less in the long run than a 30-year, because you've paid off the debt a decade and a half earlier.

Picking the Best Lender
The key items to consider when selecting a mortgage lender are costs and service. Understanding the terms of your loan (the amount of the monthly payment, the number of years until it's paid off, the interest rate, fees, whether or not a penalty is accessed if you pay off the loan early) will provide insight into the various costs. Conversations with your prospective lender or mortgage broker and a review of the good faith estimate the lender provides will enable you to make a reasonable comparison.


On the service side, getting your questions answered in a timely and accurate way is an important element of the process. Applying for a loan requires quite a bit of paperwork as well as the collection and dissemination of a significant amount of personal information. Having a single, reliable point of contact for your questions can make the difference between a smooth, easy process and a tough experience.

Having the loan ready in time for your closing is another important consideration. Final documentation is often unavailable until days or even hours before the closing, and coordinating the schedules of the various parties involved in the transaction can be a challenge. A dependable lender will help to keep everything on track and on time and make a significant contribution to your personal peace of mind.

Although dealing with someone in person is usually preferable, you might save money by using an online lender. In theory, because online lenders have lower overhead, they can pass on the savings to consumers in the form of lower interest rates and fees. But you still need to comparison shop – don’t make the mistake that nearly half of regular mortgage borrowers make and only get a quote from a single lender. And an online lender might not be right for you if you need a lot of hand-holding during the process.

Studying a company's history, its pricing and the prevailing sentiment of previous customers provides a glimpse into whether that lender deserves to loan you money.