A key part of saving money with your mortgage is to get the lowest mortgage rate possible. The mortgage rate determines how much interest you will have to pay to the bank for the privilege of borrowing their money to buy your home. What many people don’t understand is that this is a controllable expense.

A mortgage loan is a product plain and simple. It is no different than your car, washing machine, or sofa. You would not consider making a large retail purchase such as these without carefully researching the different models available, shopping around and then finally dickering with the sales person to negotiate a lower price. A mortgage loan is no different. Mortgages are offered by banks, credit unions, finance companies and through mortgage brokers. The competition for your business is fierce. Each of these lenders will fight to win you over and if they have to cut (or discount) the rate to do so, they will. To ensure you are saving as much money as you can, take the time to educate yourself. Learn how fees and costs can have an effect on mortgage rates. Understanding how different down payments and mortgage insurance can affect the cost of borrowing will put you in the position to get the lowest mortgage rate possible.

To best be able to compare apples to apples when you are shopping for the lowest mortgage rate, it is necessary to understand the different interest rate options available on mortgage loans. Generally this means a choice between a fixed rate mortgage and an adjustable (also called variable or floating) rate mortgage. Both have their benefits and disadvantages given market conditions, but you need to ensure that when comparing the rates offered among different lending institutions that you are comparing the rates of the same type.

With fixed rate mortgages, the interest rate is determined at the beginning of the mortgage term and locked in for its duration. Regardless of what happens with interest rates in the market, whether they go up or down, your mortgage rate will not change. This can be extremely advantageous when you are negotiating your mortgage rate in an environment where you expect mortgage rates to go up.

With an adjustable, variable or floating rate mortgage, your interest rate will fluctuate throughout the term of the mortgage. The rate is often linked to the central bank’s prime lending rate, so as rates in general rise or fall, so will your mortgage rate. This is a wise option if rates are expected to stay flat or decline. The impact to you when interest rates rise is your payment generally increases. If it stays the same, more of the monthly payment is going toward paying interest and less is going toward paying the principal.

When comparing mortgage rates you should really be comparing the annual percentage rate (APR). The APR is the total cost of borrowing stated as a yearly rate. This includes the interest rate, broker fees, points, and other charges. Fees, “hidden” or otherwise, impact the cost of borrowing. When shopping for the lowest mortgage rate possible, it is important that the fees the lender will be charging are presented clearly in advance. This way you can determine if the lender with the lowest advertised rate intends to add a bunch of additional fees at funding, while the next lowest advertised rate already has those costs factored in. This is a key piece of advice.

Also related to affecting the total cost of borrowing is the amount of your down payment, if any, and whether or not default mortgage insurance is required. Usually if you are putting down less than 20%, the lender will require that you obtain Private Mortgage Insurance. This is insurance for the bank to cover them in the event that you default or do not repay your mortgage. The insurer charges a premium for this service and that premium is passed along to you and added on to the amount borrowed. Additionally, many financial institutions are offering 100% financing where you aren’t even required to have a down payment. However, the rate available to you on these mortgages is not as low as may be offered if you are able to come up with even 5% or 10% to put down.

When you have completed your initial research and have a good understanding of what is available it is time to negotiate. Remember, mortgage loans are simply products and the price is not set in stone. Be sure to tell each of your prospective financial institutions that you are shopping for the best rate. This will encourage them to cut right to the chase and avoid an exchange of negligible discounts. If you are in a position to offer further business to whomever grants your mortgage be sure to say this up front as well. Mortgage rate discounts are more freely given to clients when they take out a package of products from the financial institution (i.e. Bank accounts, investments, credit cards, etc.).

Consider going through a mortgage broker for a low mortgage rate but watch out for fees and commissions. A mortgage broker will shop your business out to several lenders. Be aware that he is not obligated to select the lender offering the lowest rate. Instead he may attempt to give the deal to his “go to” lending institution; the one that pays him the highest finders fee or provides him the best service, so you should explicitly state that you are looking for the lowest mortgage rate possible. In fact, visit more than one broker. Also be sure to ask the broker how he is compensated to ensure that this compensation is not passed along to you in the form of additional fees or points.

Take the time to research different types of mortgage rates and their associated fees and costs. Remember, mortgages are simply commodities and there is a crowded playing field vying for your business. Mortgage professionals expect to negotiate the mortgage rate and expect you to save money by getting the lowest mortgage rate possible. Don’t disappoint them.

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