How Do I Know When I’m Getting the Best Deal?

Once upon a time, getting a home loan was as simple as walking down to the local bank, sitting down with the manager, shaking hands and… presto! You’ve got a home loan. But, with the advent of on-line lending, times have changed. Borrowers are now spoiled with choice! With so many different lenders beating a path to your door and giving customers so much different information, how do you know when you’ve got the right loan for you?

Well, wonder no more!

The first thing to keep in mind is that, because access to the competition has become so easy, the cost to refinance your home is going to be very similar across different lenders. If one lender really costs half as much as everyone else (as some companies would have you believe) they would drive all the competition out of the market. Why would you ever go with anyone else?

Second, cost isn’t everything. Do you drive the cheapest car you can find? Do you go online and seek out the cheapest dentist? How about the cheapest peanut butter? Of course not, you’re a smart person. You know that cheaper doesn’t mean better. It usually means just the opposite. When looking for a mortgage lender, quality matters! Make sure you are doing your research. Look at online reviews. Ensure that the company you are talking to is going to do what they say, the right way, and in a timely fashion. When you spoke to each company, did one company just ask what you want to do and then throw some options in front of you or did they take time to really get to know your situation and what your future holds? You may be astonished at what a mortgage can accomplish when you take the time to really have a conversation about your current situation as well as your short AND long-term goals.

So now you’ve done your homework and you have two different offers sitting in front of you from two reputable lenders, that both took plenty of time to truly understand your situation and your goals. They both sound pretty good, but one has a lower interest rate. Problem solved, right? Wrong! Interest rate is just one small factor in a home loan and is definitely NOT the most important. When comparing loans, there are four major factors to keep in mind.

1. What did each company put in writing? Just because someone tells you one thing doesn’t mean that those terms will be the same at the end of the process. Online reviews should give you some indication of lenders that are in the habit of playing games like this.
2. What accounts are getting paid off? One of the most popular goals to accomplish with a refinance is consolidating high-interest compounding credit card debt. Is one mortgage payment significantly lower than the other? Make sure both loans are paying off all the same debt. A lower mortgage payment may not be the best thing if it’s leaving other revolving debt unpaid.
3. How much cash are you receiving from each loan? Need to tackle some home improvements? How about start a college fund or maybe just beef up the 401(k)? Taking cash out of your home is an excellent way to accomplish all of these things. If one options looks like it has a much lower payment, make sure that both loans are giving you the same amount of cash to accomplish your goals at the end of the day.
4. Finally, the payment. Both companies have given you written offers, both pay off the same debts and give you the same amount of cash, but one offer is a hundred dollars less per month! Make sure that you’re comparing apples to apples. A common difference is escrow. If one payment includes your taxes and insurance but the other doesn’t, or is using different estimated amounts, make sure you’re accounting for that difference. However, the most common difference is going to be the term, or duration of your loan. Term is by far the most powerful factor in determining what you will pay over the life of your loan. No matter what the interest rate is, making twice as many payments is going to cost more. If you have a payment in front of you that seems much lower than the competition, it may be that you will be paying it for a longer time than the competing offer.

By paying close attention to these four things and doing a little bit of research up front, you can be sure that you are going to put yourself and your family in the best possible financial position for years to come. Happy borrowing!

Written by:  Steve Straley, Senior Loan Advisor at Royal United Mortgage LLC

Published: 4/14/2016