How to find the best mortgage rate

By ,
Ask a Lender
November 15, 2016 | Updated September 21, 2017


Key Points

Finding the best deal in the mortgage market

  • Interest rates will vary among lenders.
  • Shop around to find the best deals.
  • Not all rates and fees promoted by lenders are set in stone, so it pays to negotiate.
  • Once you strike a deal with a lender, get it in writing and lock in the interest rate.

Every week, news stories come out describing changes in mortgage rates and what the average rate is nationwide. When potential homebuyers are ready to obtain a mortgage, however, there is a good chance the rate they are quoted won't exactly match that national mortgage rate. It may not even be particularly close. If the same homebuyers ask 10 lenders for rate quotes, they may get 10 different responses.

So why are rates so different from lender to lender, and how can consumers be sure they are getting the best possible rate from their lender?

Essentially, shopping for a mortgage is just like shopping for anything else. Cars, for example, have a manufacturer's suggested retail price, but the actual price will still vary from dealership to dealership. Some dealerships may offer an extended warranty, a free rental car during repairs or other deals in exchange for a higher initial price. For consumers, the trick is to find the best overall deal that works for them.

The same is true when shopping for a mortgage. Although there may be an "average" rate for the market, not every lender will offer that precise rate to potential homebuyers. Lender comparison is key.

Why rates vary

Just like with all other retail operations, lenders want to get consumers' business. To stay competitive, some will tout their lower interest rates, with others bragging about their lower fees. Even though lenders want to attract customers, that doesn't always mean that potential homebuyers will be given the best rate option by lenders.

"On any given day, lenders and brokers may offer different prices for the same loan terms to different consumers, even if those consumers have the same loan qualifications," according to the Federal Trade Commission (FTC). "The most likely reason for this difference in price is that loan officers and brokers are often allowed to keep some or all of this difference as extra compensation."

Of course, there are other reasons why lenders' rates may vary. Depending on borrowers' credit scores, different companies will judge risk in different ways and adjust their rates accordingly.

Some lenders also build "points" into their offer. A point is equal to 1 percent of the loan amount. Points can be charged as part of the cost of originating a mortgage loan. You also can choose to pay mortgage discount points as a way of buying down the interest rate on your loan — which makes sense if you plan to stay in the home long enough to recover that cost through the longer-term interest savings.

Get the best rate

When people buy a car, they oftentimes visit several dealerships to find the best deal. And once that is found, they still negotiate with dealers to make the deal even stronger. The same should be true of homebuyers.

Even when you're done shopping around and have found your lender, don't stop there.

Not all rates quoted by lenders are set in stone. It's always worth negotiating with lenders to ensure you are actually getting the best possible deal. You can try to negotiate for a lower interest rate, reduced fees or the inclusion of discount points.

Once you strike a deal that's right for you, ask your lender to put it in writing and sign it. You want to lock in the rate once you feel comfortable, so that you won't be stuck with an unwanted surprise if rates go up.

"Lock-ins can protect you from rate increases while your loan is being processed. If rates fall, however, you could end up with a less-favorable rate," the FTC says. "If that happens, try to negotiate a compromise with the lender or broker."

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