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Important Note: published interest rates can vary from the actual rate that has been quoted due to factors that consider your credit rating, income ratios, type mortgage loan, mortgage qualifications and location. To get the best rate, you must negotiate your rate down using the following steps:

First step, check your credit rating:

the higher your credit score (FICO 720 and up), the stronger your position to negotiate best rate.

see checking your credit report

If your credit rating is below FICO 700, you might consider steps to strengthen your credit score: more information available at credit management center

Analyze your housing and debt ratios:

again, if your ratios are within lending parameters (28/36), you are in a strong position to negotiate rate and terms — click here to calculate ratios

you might consider paying off your debts, closing credit card and retail charge accounts that are not in use, and consolidate big ticket items into a low, repayment plan: see our debt reduction module

Understand the mortgage lending business:

knowledge is power. Know how the lending business works so that you can understand terms that may be thrown at you.

Start with this page if you haven't done so already — it will point out important mortgage lending steps and processes

When ready, submit your application:

allow our network of financial advisors from your area compete for your business - get up to 4 lender quotes

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Collect and analyze lending offers:

use this loan comparison worksheet (FREE download) to compare rates and terms among the lenders that have reviewed your application

what you should compare: see our notes below

Compare programs:

compare these lender rates and terms with other published rates referenced on this page

Start negotiations:

you are now in the position to negotiate with your lender of choice to match or beat any rate that you feel you deserve

Notify the lender that you have shopped programs and if they want your business, they must meet other competitive offers

Please note: rate information supplied by external links do not reflect your actual rate. Your actual rate is a reflection of your credit score, loan amount, down payment position, and competing factors as you negotiate best rates and terms among lenders.

Note that mortgage rates change daily. Rates will also differ by region and locality.

We do not list rates on this site since we are not a lender and cannot determine rate based on the factors above. Rather we list references to rate information where you can view sample rates from various regions and lenders.

About Interest Rates

• The interest rate is an annual percentage rate
  that lenders charge for home loans. Your monthly mortgage payment includes an amount for the interest rate charges and repayment amount for the loan balance.
  
  
• Mortgage interest rate charges are tax deductible
  for qualified individuals. You can deduct the amount of interest paid during the year if you file Schedule A.

Interest Rate Terms

• Initial Rate: This is the initial rate that the bank quotes for a mortgage loan. It is the rate that calculates the amount of interest you pay each month.
  
  
• Annual Percentage Rate (APR): The actual interest rate the borrower pays when all the costs of obtaining the loan are included.
  
  
• Effective Percentage Rate: The rate that reflects the total interest paid after adjusted for items such as interest rate deductions from your taxes.

Calculating APR

• Annual Percentage Rate: APR is the actual percentage interest rate the borrower pays when all the costs of obtaining credit are included. APR includes points and other lending assessed fees.
  
  Lenders are required to report APR so that borrowers can compare lender quotes and fees. In the past, lenders used to entice borrowers with low rates but then end up charging high fees. APRs protect consumers from predatory pricing.
  
  You should always compare the APR when evaluating lender quotes.
  
  
• Example of APR:
  • Borrowed amount: $100,000
    
  • Quoted initial rate: 7. 00%
    
  • Number of points: 0 points
    
  • Term: 360 months
    
    APR: 7.00%

  In this example, the APR is the quoted initial rate of 7.00% because no additional fees were included.
  

• Another Example of APR:

  • Borrowed amount: $100,000
    
  • Quoted initial rate: 7. 00%
    
  • Number of points: 1 point (1% of the loan amount)
  • Term: 360 months
    
    APR: 7.099%

  In this example, the APR is greater than the quoted initial rate because points were added to the cost of obtaining the loan. The APR of 7.099% becomes the actual percentage rate after including all points and other lending assessed fees.

  Try this True Cost Calculation from Fannie Mae® to calculate rate, points and APR

Calculating the Effective Interest Rate

• Effective Interest Rate: The effective interest rate is the interest rate you will pay after deducting qualified interest related expenses from your taxes.
  
  You should discuss tax deductibility with your tax advisor.
  
  
• Example of Effective Tax Rate:
  • Amount of interest paid during the year: $10,000
    
  • APR: 7. 00%
  • Tax Rate: 28%
    
    Eligible tax deduction: $2800
    Effective tax rate: 5.04%

  In this example, the actual interest paid after deducting a portion from your taxes is $7200. The effective interest rate now becomes 5.04% for the year that interest rate deductions were taken.
  
  See our effective interest rate table

What Are Points

• Points are prepaid interest
  that lenders charge for the cost of borrowing money. Charging points is a standard practice among mortgage lenders.
  
  
• A point equals 1% of the amount you borrow.
  For example:
  
  If you borrow $100,000 and pay 2 points, your "cost" to borrow that money will equal: $2,000.

  You have the option to pay the points "up-front" at the time of closing or have the lender subtract the points from the amount they lend you.
  
  Example: if you are borrowing $100,000 and select to subtract 2 points from your loan amount, the lender will take out $2,000 and give you $98,000.
  

• For tax purposes, it makes no difference whether you pay the points up-front or have them deducted from the loan amount.
  
  Points are considered "interest-paid" and may be fully deductible in the year you pay them. See our tax notes for more information about the tax deductibility of points and mortgage-related interest

Points and APR

• Points can raise your APR.
  One point is roughly equivalent to one-eighth raise in your initial rate on a 30-Yr mortgage.
  
  Example: a 30-year mortgage rate at 9% and 2 points is roughly equivalent to an APR of 9.25%.
  
  Under a 15-Yr mortgage term, one point is roughly equivalent to one-sixth raise in your initial rate.
  
  Example: a 15-year mortgage rate at 9% and 2 points is roughly equivalent to an APR of 9.35%.
  
  
• Sometimes you can pay additional points to reduce your interest rate.
  
  A lender may quote an initial rate of 9.25% and another rate at 9.0% if you pay 2 points.
  
  Compare rates vs. points calculation:
  www.dinkytown.net
  
  
• Is it better to pay points for a lower rate or pay the higher rate?
  1. It depends on how long are you going to stay in the home.
     
     As a general assumption, it takes about 5-7 years to recoup the cost of points. If you are planning to sell your home within this time frame, it may be better for you not to pay points.
     
     For illustration:
     
     

     Loan amount: $100,000 Term: 30 years Mortgage Loan: 2 points Mortgage Loan: 0 points Rate: 6.50% Payment: $632.07   Cost of Points: $2,000 Rate: 7.00% Payment: $665.30 Monthly Net Increase: $33.23   Recoup Costs: 5 years ($2000 / $33.23 / 12 months) Loan amount: $200,000 Term: 15 years Mortgage Loan: 3 points Mortgage Loan: 0 points Rate: 5.90% Payment: $1,676.93   Cost of Points: $6,000 Rate: 6.60% Payment: $1,753.23 Monthly Net Increase: $76.30   Recoup Costs: 6.5 years ($6000 / $76.30 / 12 months)

     
     
     
  2. It depends on the time value of money.
     You need to analyze whether you can get a better return by investing your "points".
     
     You must consider your tax bracket and the investment's ROI vs. the interest rate being charged for your mortgage.
     
     Try this calculation from smartmoney.com: click here

Be Prepared to Negotiate Points

• There are two parties that play a part in originating mortgage loans:
  
  the mortgage underwriter
  the mortgage distributor (or marketer)
  
  
• Mortgage Underwriter:
  the mortgage underwriter is the lender of money. They take money from a pool of funds (in most cases, deposit money) and lend it to the homebuying market at a base percentage.
  
  The base percentage includes the cost for using the money and a margin for profit.
  
  

  Example:*	Cost of Money:	3.50%
  	Servicing Costs:	0.75%
  	Other Costs:	0.25%
  	Profit Margin:	1.50%
  	Base Percentage:	6.00%

  
  
  

  *This is a sample of deriving base percentage and does reflect the actual numbers of the industry.

  But there are additional costs that the lender must incur. These costs include the marketing or distribution costs in getting the loan money to the buying consumer.

  Lenders will then add points to the base percentage to cover their marketing and distribution costs.

• Mortgage Distributor:
  the mortgage distributor is generally the "retailer of the loan" who meets with you to select and finalize your mortgage product.
  
  These distributors can be the mortgage loan officers of the lending institution or the mortgage broker.

• The mortgage loan officers
  work for the lending institution. They have their offices scattered around the community where you can meet one-on-one to discuss your mortgage needs from the lender they represent.
  
  They are paid a salary and in some cases a commission for every mortgage loan that they originate.

• Brokers on the other hand work independently of lending institutions.
  
  They work on your behalf of the borrower to shop among multiple lenders for the best product and price.
  
  These players are usually paid a broker fee by the lender when they originate the loan on the lender's behalf.

• Compensation for commission and broker fees
  are in many cases the points that lenders add to their base percentage rate when they quote mortgage rates.
  
  If you desire to pay zero points, lenders will then raise the base percentage rate to cover their cost of marketing and distribution (with a little profit in there too).

So What's the Point

Negotiate:
note that points and other originating fees are marketing compensation fees for originating your loan — in other words, it is the "profit" for brokers and lenders.

As an informed mortgage shopper, you are in a position to negotiate these "profits" down if you are in a strong qualifying position for a mortgage loan.

A little profit is better than no profit if the lender knows that you can go with another lender.

Compare APR (rate):

• The APR, expressed as a yearly rate, takes into account not only the interest rate but also points, broker fees, and certain other credit charges that you may be required to pay.
  
  
• Comparing the APR among lenders is an effective way to shop for mortgage loans. But you must compare similar loan products for the same loan amount and terms.
  
  Compare your true lending costs from Fannie Mae:
  www.mortgagetoolshed.com

Compare Points

• Points are fees paid to the lender or broker for the loan. The more points you pay, the lower the rate.
  
  
• Request that points be quoted as a dollar amount so that you will actually know how much you will have to pay.

Compare Fees

• The processing of your mortgage application and closing settlement may require payment for loan origination or underwriting fees, broker fees, and transaction, settlement, and closing costs.
  
  
• Every lender or broker is required to give you an estimate of its fees. Compare these fees among several lenders. Many of these fees are negotiable: see closing costs

Compare Numbers

• Some lenders will offer lower closing costs for higher up-front points.
  
  When you add it all together, the total cost may be less than a mortgage product with lower up-front points but higher back-end closing costs. These are all negotiating areas with your lender.
  
  
• Note that your individual situation such as how long you intend to remain in the house and your tax situation (points are tax deductible) may affect your loan comparison.
  
  
  For more loan comparison information from the US Government:
  www.pueblo.gsa.gov
  
  Download this loan comparison worksheet:
  mortgage_worksheet.pdf
  
  For Example:
  Compare 30-year fixed rate loans for $100,000 and at 8%.

Loan A:
lower up-front points but higher closing costs

2 points ($2,000) and lender closing costs of $1800 = $3800 in costs.

Loan B:
pay more points for lower closing costs

2-1/4 points ($2250) and lender required costs of $1200 = $3450 in costs.

Mortgage interest rates fluctuate daily.

Rates can increase and decrease depending on market conditions.

The quoted rate and terms offered by a lender is contingent on the day you close on your home. But closing may take weeks, or even months

You should ask your lender about lock-in rates.

Lock-ins protect your mortgage interest rate and points from rising while you wait to close on your home.

Your lock-in agreement should be in writing.

You want to avoid a dispute with your lender at time of closing. Also read the fine print and understand the terms of the lock-in. Some lock-in agreements have been known to become void through some unrelated action on your part.

The lock-in-rate is good for a specified period of time, usually 30-60 days.

These periods may differ by lending institution. The period should be long enough to allow for settlement. If you fail to close within the specified time, the lock-in-rate expires and your mortgage loan reverts to the current interest rate.

The lock-in-agreement only protects you in rising interest rates.

If the current rate falls below your lock-in-rate, your mortgage loan will close using the lock-in-rate. The only way you can use the lower rate is to resubmit your mortgage application and pay a loan processing fee.

Lenders may charge a flat fee, a percentage of the mortgage amount, or a fraction of a percentage point for lock-in rates.

The amount of fee may vary by lenders and may depend on the length of the lock-in period. Check the cost among lenders. Be prepared to negotiate the cost down if you can.

For more information on lock-in agreements:
www.pueblo.gsa.gov