Mortgages are complicated and our primary aim is to take the problem off your hands with data and expertise. If you want to better understand what goes into which mortgage product you should choose and how to shop more effectively, then please read on. If you want to cut to the punchline and use our best mortgage for you tool then you can head there first.
What goes into figuring out the best mortgage for you?
Thinking of buying a home or already decided to refinance your old mortgage? You can simplify the problem by breaking your optimal mortgage choice into two steps. Both of these are to minimize the expected costs to you: 1) choose the right type of mortgage, 2) shop/negotiate the best price for it. Our “best mortgage for you” tool asks you the biggest questions that drive what exact product you should choose and then does the shopping for you, searching across lenders and multiple price comparison websites at the touch of a button (as sometimes one website has a better price than another). To figure out the best price for the best product, you can’t forget that the price of a mortgage is more than just an interest rate. You’re getting a loan (the mortgage) today in return for some upfront fees and ongoing monthly payments.
1) Find the best product for you...
The biggest factors for figuring out the best mortgage for you are: a) your goals (paying the debt off as quickly as possible vs minimizing your monthly payment), b) how long you think you’ll stay in the home, and c) your appetite for risk. This last one (tolerance for required payments that can fluctuate) is important as usually the lowest expected cost option involves taking on the risk of monthly payments floating up and down with respect to some benchmark index (an “adjustable rate mortgage”). On the first two, the lowest fixed monthly payment is usually with the longest dated type of mortgage (a thirty year fixed rate mortgage). Lastly, how long you think you’ll stay in the home decides whether you should be paying “points” (to lower the interest rate) or taking “credits” (up front cash in return for paying a higher interest rate).
Jargon You'll need to know:
Points refers to paying additional percentage points (of the total loan amount) at the closing table to lower your interest rate. For mortgages that are 15 or 30 years maturity, this investment is a bet on staying in your home (and your loan) for longer than average.
Credits are the reverse of points - you get dollars at the closing table in return for taking a slightly higher interest rate.
Fixed Rate and Adjustable Rate refer to whether the monthly payments are fixed for the life of the loan, or can they adjust or float up and down as future interest rates go up or down.
30 Year, 15 Year etc. refers to the length of time in years the loan is outstanding for.
Down Payment - for a purchase loan, the amount of the purchase price you are covering for the new home.
For a purchase loan, you need to figure out how much you want to put down on the loan. This is up to you to a certain extent. It can’t be $0, but close! Typically 3-5% is a minimum. The most common choice is 20% of the purchase price. Usually the lower % of purchase price you pay with your own money, the higher interest rate you’ll have to pay.
At this point, you’ll have figured out the best option amongst different mortgage products. Next we need to figure out the best price/best lender for that product.
2) ...at the best price today
We use technology to your advantage, scanning today’s rates in the current mortgage market to “auto-shop” any advertised prices you might find online.
You can find more on shopping for mortgages in a companion article to this one We also keep an eye on lenders’ dependability (based on user feedback and mystery shopping) and pass that feedback onto you so you can have peace of mind that the prices you’re seeing can be depended on.
You’ve figured out the best mortgage for you and how much home you can afford. What next?
After finding the best option for you online, this doesn’t mean you need to go with the lender you found (or we found for you). You can always use the price we found to negotiate with someone else, getting them to match or beat the offer or trying to. If you want to go with another lender, and as long as you can afford the time to look into it and negotiate a price-match, just be sure any hard credit pulls (from applying) happen within 15 days of each other so there’s no unnecessary negative impact on your credit score. (Even if there is, it will be small.)
All the best. Check out our best mortgage calculator and let us know how it goes!