How to fond the best mortgage rate

The best mortgage rate is really a relative term. The absolute best or lowest mortgage rate isn’t always right for everyone--because the lowest rates available usually require significantly more closing costs than do rates that are not as low. Knowing why you want to refinance, and what your goals are for refinancing, is critical to finding the best rate for your situation. Your risk tolerance also can have an effect on your mortgage rate. Historically, adjustable-rate mortgages, or ARMs, have lower initial interest rates than 30-year fixed-rate loans. However, you risk the interest rate rising once the loan adjusts. 1 Discuss the reason you want to refinance with any other borrowers on the loan. Estimate the number of months you will continue to live in the home. Your strategy will be different if you plan on living in the home until it is paid off, than it will be if you know you will outgrow the home in the next few years. Write down your goals and estimates. 2 Shop your mortgage with several lenders and brokers. Talk to at least three to five companies before you make a decision. Ask for multiple loan scenarios for comparison. Your quotes could include a 30-year fixed, a 15-year fixed, an ARM and a hybrid ARM. Hybrid ARMs have fixed-rate periods for three, five or seven years before they adjust. Their rates will be higher than a normal ARM that adjusts annually, but lower than a 30-year fixed-rate loan. 3 Compare the different loan programs from each lender. Decide which loan you prefer and discard the remaining quotes. Complete the “using the shopping cart” section on page three of the good faith estimate, or GFE. Fill out each loan’s specific costs and interest rate. 4 Subtract the proposed principal and interest payment from the current principal and interest payment. The result will be the monthly savings the new loan will provide. Divide the closing costs by the monthly payment savings. The result will determine how many months of savings are required to pay for the refinance. Subtract the number of payments required to pay for the loan from the total number of months you expect to own the home. Multiply the remaining months by the monthly savings. If the new loan will save you $120 each month, and the closing costs are $3,600, it will take 30 months to pay for the refinance. If you plan to own the home for seven years, then you will have 84 months of saving $120 each month for a total savings of $10,080. Work each quote using the same formula and apply for the loan with the largest total savings.