How do I pick the best rate quote?

If you've been shopping for the best mortgage rates, you've probably discovered that it's hard to tell which company can offer you the best rates with great service.

So just how do you go about rate shopping to find the best options for your upcoming refinance or home purchase?

When trying to pick out which mortgage company's rate quote is the best, you need to consider a couple of things. You should consider obviously the rates that are being quoted, the GFE (Good Faith Estimate) that the mortgage company has provided, and how much you trust the individual or company that you are working with. By using a combination of these 3 factors they should help you to make a good decision as to which rate quote to go ahead with.

Just choosing the lowest rate isn't always the best answer. High closing costs can outweigh a "good deal". One effective way to compare apples to apples is to compare the APR of your rate quotes. This will be found on the Truth In Lending disclosure and should be provided to you by law.

If you are doing a 100% loan and you want to weigh the differences between one loan and two loans do the following. For example, if you have an 80/20 loan, of 160,000 and 40,000 take the rate for the 1st loan and multiply it times .8. Then take the rate for the 2nd loan and multiply it times .2. Then take those two numbers and add them up. The number you receive is your rough "weighted" interest rate. Then if you were quoted a rate on a single loan, compare the "weighted" average of the 80/20 deal to the single loan rate, and you can gain a sense of what is the most economical deal for you.

You may also want to ask for a Truth N' Lending statement or TIL. This will show the APR from the mortgage program being offered to you. Although the payment is NOT based on the APR, by comparing the TIL and GFE of different loan programs you will better be able to see the total costs of the entire loan(s) your are being offered.

You can make a high level comparison using APR, assuming all loan terms are identical. For a truer analysis, you need to take a look at the interest rate and the closing costs and make some assumption on how long you will keep the mortgage. Then calculate the total cost of the mortgage over that period of time. If the different quotes have different terms, you are going to need to estimate the cost of some soft factors, such as what is not having a one-year prepay worth to you.

It is very important to compare terms of the loan when comparing rates. One company may be telling you that the rate they offer is a full percentage (1%) lower than another, but it may not be for the same loan. Many times a lower rate is offered on an adjustable rate mortgage, or for a 15 year term rather than 30 years- thus resulting in a higher payment even with a lower rate. This may or may not be the loan that is right for you. There are so many different morgage programs out there, so be sure to let your mortgage profesional know what your goals are with this home (ie. how long you plan on living there, if you plan on refinancing etc...) so that he or she can structure the program best fot for your needs.

» DISCLAIMER: The information contained in this article on 'How do I pick the best rate quote?' is a collection of contributions by licensed mortgage professionals and is not the opinion of Broker Outpost LLC. Always consult a licensed professional before applying for a mortgage.