Never order or buy just the "Interest rate" – Navigating the mortgage maze

A couple of key tips regarding interest rates:

1. There is the rate you need to know:When applying for a loan, never ask only for the “interest rate”, always ask for the APR. The APR includes fees and costs and is the ACTUAL cost of the loan on an annual percentage basis (if accurately quoted). The interest rate alone does not. So you might be quoted 5.00% interest, but after fees and costs, you have an APR of 5.50%.
2. Check the APR:Once an APR is quoted, always check it with a mortgage calculator (these are available for free online at places like bankrate.com) to make sure it is accurate. All you need is the loan amount, the payment, and the term to verify. If the loan amount, payment, and term you entered do not match the APR they quoted you, then they quoted you incorrectly and you need to find out the truth.
3. The low rate you see is not necessarily what you get:Don’t be fooled – the low rates you see advertised are for the highest rated. This means 720 to 740 FICO or higher in today’s market, with verifiable income, a maximum of 80% loan to value, and low debt ratios. As your credit score goes down and your capital use or debt ratio goes up, your rate will most likely do too. Plus, there are many additional “premiums” for things like cash withdrawals, condos, and the like.
4. The fee IS NOT the number 1 consideration in many cases:As important as rates and APRs are, what is more important is what you get for rates and APRs. You can get a great rate and a bad loan or a competitive rate and a great loan. It all comes down to looking at more than just the rate and payment, but also: the term, the tax costs, the fees paid, the purpose of the loan, and the overall cost or benefit. In other words, if you got a greta rate, but extended the term of your loan, increased your taxes, paid unnecessary fees, and did not capitalize on the best loan for your situation, then it was not beneficial (this happens most of the time at a rate and term refinancing). But if you cut your payments, terms, taxes, reduce debt, save money up front, improve your financial position, and negotiate fair rates, you have truly done yourself a great service!

Let me leave you with this nugget of truth from Proverbs 24: 3: “By wisdom a house is built, and by understanding it is established.”