How to Compare Loan Offers
Compare interest rate and APR
The lowest interest rate does not always the cheapest loan make. For instance, does one loan offer include discount points (pre-paid interest)? Discount points lower the interest rate, but increase your upfront closing costs. For the most accurate loan comparison, look at the interest rate and the annual percentage rate. The annual percentage rate (APR) is a better indicator of the cost of your mortgage over the life of the loan. For more, see our article on interest rate and APR.
Compare the monthly payment and the loan type
The monthly payment for your loan is very important when determining your new home’s affordability, but it isn’t the only consideration. For instance, an adjustable-rate mortgage usually has a lower rate than a fixed-rate mortgage, and therefore a lower monthly payment. But, an adjustable-rate mortgage also carries with it the risk of increasing monthly payments. Be sure to understand both the initial monthly payment and the potential maximum monthly payment. You want to be able to afford both. In the end you may find that your peace of mind may be worth the higher monthly payment.
Compare closing costs and fees
Another factor in the cost of a loan are the fees that a lender charges. Origination fees, appraisal fees, title search and other fees vary from lender to lender, so this is an important point of comparison. Get a Good Faith Estimate (GFE) from your prospective lenders and ask for an explanation of any line item you don’t understand.
Use the GetSmart® Mortgage Comparison Calculator to see which loan offer is right for you.
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