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 Accurately comparing different home mortgage rate quotes
  Choosing between low rate vs. low cost home loans
By the EchoBay Loans Expert
 Accurately comparing different home mortgage rate quotes
Dear EchoBay Expert: How can I compare home mortgage rates quotes I received from my mortgage broker and an online lender I found?

Dear Loyal Reader: The easiest way to compare home mortgage rates between lenders is by looking at the APR (annual percentage rate). The government requires that all lenders state the APR. This number takes into account the total costs of the loan as well as the interest rate and converts it to a percentage.

The lender with the lowest APR is generally the best deal for you. When you do compare APRs, be sure you compare based on the same terms. You cannot compare the APR of a 15-year loan to a 30-year loan. But also be sure to compare the difference between the interest rate and the APR.

A larger difference means more fees. Finally, when comparing home mortgage rates, it is helpful to know how long you plan to stay in the house. If you only plan to be there for a short time, it is almost always better to go for the loan with a little higher rate but lower closing costs.

You can easily figure this out by calculating the breakeven point for each loan. This is another simple way to identify the best loan for your situation.



 Choosing between low rate vs. low cost home loans
Dear EchoBay Expert: My wife and I will be living in the home we will be purchasing for only 6 years. How can we calculate whether getting a loan with the best mortgage rate or a loan with the lowest closing costs makes the most sense?

Dear Loyal Reader: The calculation is actually quite simple. Let's assume that the best mortgage rate loan has a payment of $750 and $4,500 in closing costs and the lowest closing costs loan has a payment of $865 and $1,500 in closing costs. You will need to calculate your total outlay over the six years you plan to stay in the home. For the best mortgage rate loan, your total outlay is $58,500 ($750*72 + $4,500).

For the low closing costs loan, your total outlay is $63,780 ($865*72 + $1,500). If you stay in the house for six years, your best option is the best mortgage rates loan.

Another option is to calculate the breakeven point. The difference in payments is $115 and the difference in closing costs is $3,000. To find the breakeven point, divide the additional closing costs by the savings in payment ($3,000/$115). This equals 26 months.

What this means is that you must stay in the house for at least 26 months to recoup the higher closing costs. After that point, the best loan is the one with the lower mortgage rate. If you were going to be in the house for less than 26 months, you would be better off financially with the higher interest rate and lower closing costs.


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Avg. National Rates
30 Yr Fixed 5.78%
15 Yr Fixed 5.39%
1 Yr ARM 4.80%
WSJ Prime 6.50%
Fed Funds 3.50%

 



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