There are few activities you'll take part in that have more bearing on your financial future than shopping for mortgage rates. Once you commit, you're stuck with that rate and term for years, and if you aren't careful you could pay far more than you need to. If you're planning to look for a new mortgage or refinance a mortgage in the near future, make sure you don't make one (or more) of these five mistakes or it could cost you money you could be using for other things.
1. Not Planning Ahead
It sounds like a no-brainer, but too many people wait too long before preparing to negotiate a new mortgage. To get the best home loan choice and the best mortgage rates, you need to be the best potential borrower you can possibly be. This means starting to plan months, or even years ahead of when you'll need the mortgage.
Build your credit history by making all bill payments on time, and paying down large balances on credit products to improve your borrowing ratios. As your credit activity improves, your score should too, boosting the likelihood of being offered a better mortgage rate when you do apply. A stable work history, proof of savings and assets, and a strong credit report are things you can start working on long before you apply for a mortgage.
2. Ignoring Everything but the Mortgage Rate
Sometimes borrowers get so fixated on a mortgage rate they fail to see red flags with other terms in the mortgage. For example, if you expect to make extra payments on your mortgage in the future, pay attention to the prepayment penalty - the cost for paying more than your regular mortgage payment. What about the closing costs associated with the mortgage? High loan origination fees, discount points, appraisal fees and legal fees can also add up and may lessen the appeal of a seemingly low mortgage rate.
3. Missing the Lock Period
Got a great rate? Good work, but don't spend too much time congratulating yourself, get moving on getting that new mortgage or refinance closed. Mortgage rates come with a lock in period, which means your deal must close within the time frame specified. Find out up front exactly when your lock in period ends so you don't make the mistake of missing it.
4. Not Comparing the Rates of Different Mortgage Loan Types
Just because you've always had a 25 year fixed rate mortgage doesn't necessarily mean you should refinance into another, and even if you've always had an adjustable rate mortgage (ARM) it may be time to consider a fixed rate mortgage. Perhaps your financial or family situation has changed, or maybe you're expecting it will in the future. This may mean that a different mortgage type could be a better choice for you. Take the time to learn about the features of fixed rate mortgages and ARMs, and compare the costs and rates of both. Keep in mind that while an ARM may have a low rate initially, it may rise dramatically once the adjustment period is over.
5. Not Shopping Around
While you may have a great relationship with your banker, mortgage broker, or other lending professional, depending solely on them to get you the best mortgage rate is a mistake, as you could be missing out on better rates available through other channels. With today's technology shopping around for a mortgage has never been easier, or faster for borrowers.
Ready to get a new mortgage? Use Lending Tree's online tool to compare mortgage rates from different lenders.