Do you believe that if you shop for a mortgage online, youll save money? Well, youre a little right and a little wrong! When youre shopping mortgage rates on the Internet, you have to beware. Just because you see the rate on your screen in black and white doesnt mean that youll be able to get that rate
by the time you submit your mortgage application. There are several reasons for this phenomenon:
- Interest rates change
- The rate isnt available to everyone or is only available to high credit score individuals
- You cant lock-in your interest rate until you actually submit a mortgage application
SEE ALSO: Finding The Right Mortgage Lender
Comparing Mortgage Rates
The first lesson to learn when shopping for mortgage interest rates on the Internet, or even offline is that you have to look beyond the rate.
The interest rate is the percentage the lender uses to calculate your monthly mortgage payment. Its an important number to focus on, but you also need to know the annual percentage rate (APR).
The APR is the true
cost of financing the purchase or refinance of your home, because it includes the upfront fees, such as closing costs. The APR turns all of these expenses, including your mortgage interest rate, into an annualized cost of credit -- what youre paying on an annual basis for establishing the loan.
Locking-in Loan Rates
When it comes to the interest rates you see online, and what you can actually get as an interest rate, you might be dealing with two very different numbers. The rate posted online is typically the number for the best credit borrowers. Additionally, because interest rates tend to change on a daily basis, and sometimes several times throughout the day, by the time you submit your application and are able to lock-in a rate, its probably not the rate that drew you in to start
You wont be able to lock-in your interest rate until you submit your application and receive approval. You may also have to pay an upfront lock-in fee, which is typically non-refundable.
SEE ALSO: What Your Mortgage Lender Isnt Telling You
Floating Your Mortgage Interest Rate
When you submit a mortgage application, the interest rate can change up until the time you close on the loan. You dont always have to lock in the rate when you apply. Many lenders will allow you to do it at any point up to a week prior to closing, which is called floating. There may be a fee to do this.
This all might leave you with an impression of bait and switch, but its really just the way that interest rates go. While federal laws regulate that lenders have to disclose the APR along with the interest and numerous disclaimers when publishing the interest rate, it doesnt require the lender to give you the actual number that you see published online - or anywhere else, for that matter.