When it comes to a large purchase like a mortgage, a fraction of a percent in your rate can add up to thousands of dollars over the life of the loan. Some lenders attempt to lure you with (what looks like) a great rate, and then charge high fees and discount points that can leave you paying much more.
Spotting a great rate: look at APR, too.
The good news is that there’s a helpful, and simple, trick when it comes to spotting a good deal. Rather than looking solely at the rate, also check the annual percentage rate, or APR for short. The annual percentage rate represents the actual yearly cost of the loan expressed as a percentage. It includes fees and points to give you the actual cost of the loan.
“If my APR is really high in relationship to my interest rate, that means I’m paying a lot of fees,” states Michigan Schools and Government Credit Union Mortgage Director Bryan Genovich. “If my rate is similar to my APR, then I’m paying a fair rate with low fees.”
Okay, so what about points?
Points, or discount points, are an option to pay a set price upfront to save more on your interest rate. “The decision to whether or not you pay for discount points should come down to two important factors,” says Genovich. “How long you plan to keep the mortgage past the break-even point, and the difference between the payment and cost of the discount points paid.” If that sounds like a lot of daunting math, that’s okay. Your mortgage consultant can help you figure out the break even and the cost differences to help you make the best decision for your situation.
Shop homes, rates, and lenders.
In addition to a great rate and APR, make sure to shop for the right lending partner. A mortgage is a long term commitment, so you want to make sure you’re working with a lender you trust. One that will be there when you have questions or need help along the way.
As a not-for-profit and full-service financial institution, MSGCU gives back to our members with market-leading rates and low fees. We’re driven to champion the financial goals of our members. Check out MSGCU’s rates and APR, then find a consultant to help you get a true preapproval.
Learn more about mortgages in this 5-minute lesson.
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