A couple of key tips about interest rates:
- There is the rate you need to know:When applying for a loan, never ask for just the “interest rate,” always ask for the APR. The APR includes fees and cost, and is the REAL cost of the loan in annual percentage rate (if quoted accurately). The interest rate alone does not. Therefore, it is possible that you are quoted at 5.00% interest, but after commissions and expenses you have an APR of 5.50%.
- Check the APR:Once you’ve quoted an APR, always check it with a mortgage calculator (these are available for free online from places like bankrate.com) to make sure it’s accurate. All you need is the loan amount, the payment and the term to verify. If the loan amount, payment, and term you assigned don’t match the APR you were quoted, then the quote was wrong and you need to find out the truth.
- The low rate you see is not necessarily what you get:Don’t be fooled: the low rates you see advertised are for the highest rated. This means 720 to 740 FICO or higher in today’s market, with verifiable income, maximum 80% loan-to-value, and low debt ratios. As your credit score goes down and your use of equity or debt ratio goes up, chances are your rate will too! Also, there are lots of additional “premiums” for things like cash withdrawals, condominiums, and the like.
- Fee IS NOT the #1 consideration in many cases:As important as rates and APR are, what’s more important is what you get for rates and APR. You can get a great rate and a bad loan or a competitive rate and a great loan. It’s about looking at more than just the rate and payment, but also: the term, tax costs, fees paid, the purpose of the loan, and the all-encompassing cost or benefit. In other words, if you got a great rate, but extended the term of your loan, raised your taxes, paid unnecessary fees, and didn’t capitalize on the best loan for your situation, then it wasn’t beneficial (this happens most of the time in a low rate). and term refinancing). But if you cut your payments, terms, taxes, reduce debt, save money up front, improve your financial position, and negotiate fair rates, you really have done yourself a great service!
Let me leave you with this nugget of truth from Proverbs 24:3: “By wisdom a house is built, and by understanding it is established.”