How to Compare Mortgage Rates

1. Decide on a Loan Type and Term

To effectively compare mortgage loan offers, you must make sure you're making apples-to-apples comparisons with the same type of loan and term. So you'll need to decide what type of loan you want and for how long.

Here are the most common options for homebuyers:

• Conventional loan: This is the most common type of mortgage. Many borrowers prefer conventional loans because they offer competitive rates and you don't have to meet certain government-backed loan requirements. They typically require a credit score of at least 620 and a down payment as low as 3%. Putting down 20% lets you avoid private mortgage insurance (PMI).
• FHA loan: These mortgages are backed by the Federal Housing Administration (FHA). They're popular with first-time buyers because they allow credit scores as low as 500 with a 10% down payment, or 580 and above with a 3.5% down payment.
• VA loan: The U.S. Department of Veterans Affairs (VA) backs these loans for eligible veterans, active-duty service members and surviving spouses. These loans generally offer low interest rates with no down payment or mortgage insurance requirement.
• USDA loan: If you're buying in a qualifying suburban or rural area, a loan backed by the U.S. Department of Agriculture (USDA) could let you purchase a home with little to no down payment and a lower interest rate. USDA loans are meant to help buyers with modest incomes or less-than-ideal credit purchase a home.

You'll also need to decide between a fixed-rate mortgage and an adjustable-rate mortgage (ARM). A fixed-rate mortgage keeps your rate and payment the same for the life of the loan. Meanwhile, an ARM starts with a lower fixed rate for an initial period, then adjusts periodically. That lower starting rate can be appealing, but make sure you have a plan for higher payments when the adjustment period begins.

Finally, decide how long you want your loan to last. A 30-year term can give you a lower monthly payment, but you'll pay more in interest over time. If you can handle the higher payment, a 15-year term may help you save on interest and pay off your home sooner.

Learn more: What Type of Mortgage Loan Is Best?

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Check today’s rates to find the best loan offers. Staying updated on current rates helps you secure a competitive mortgage and save more over time.

2. Research Potential Lenders

You'll have several types of lenders to choose from once you're ready to start shopping for a mortgage.

• Banks: Most traditional banks offer conventional, FHA, VA and jumbo mortgages. This can be a convenient option, but be aware that rates and fees tend to be on the higher end.
• Credit unions: If you're a member, these not-for-profit organizations often offer lower rates than you'll find at banks. However, their portfolio of loan products may be limited, so make sure any credit union you're considering offers the type of loan you need.
• Online lenders: These lenders generally have lower overhead than big banks and credit unions, which often results in lower rates and fees. Several online platforms allow you to compare mortgage rates from multiple lenders side by side to help you spot the best deal.

Tip: If you're short on time or just don't want to deal with the hassle, you might work with an independent mortgage broker. These brokers work with a range of lenders and can shop for the best rates and terms on your behalf. They can also walk you through the process and manage the paperwork from start to finish

Learn more: How to Choose a Mortgage Lender

3. Request Loan Estimates

It's generally a good idea to prequalify with at least three lenders, but the more the better. Remember, lenders set rates and terms differently, so collecting more quotes could improve your odds of finding a lower rate.

Ideally, all of your loan estimates will be for the same loan and rate type so you can make an accurate comparison.

Once you receive the estimates, compare the terms, including:

• Interest rate: The interest rate is simply the percentage a lender charges you to finance your home. The rate you receive will depend on your income, debts, credit and other factors lenders consider to determine your overall risk as a borrower.
• APR: You'll also see an annual percentage rate (APR), which gives you a fuller picture of borrowing costs. More on that in the next step.
• Loan amount: Confirm the loan amount fits within your budget for how much home you can afford.
• Monthly payment: The estimated monthly payment shows you how much principal and interest you'd pay on the loan each month. Make sure the amount is one you can comfortably afford while still meeting your other financial obligations.
• Fees: Your loan estimate breaks down upfront costs you'll pay at closing, such as origination fees, appraisal fees and title insurance.

4. Look at APRs, Not Just Interest Rates

When comparing loan estimates from different lenders, pay special attention to each loan's APR. This figure gives you a more accurate cost of borrowing than just the loan's interest rate. That's because it includes the interest rate plus the loan fees, closing costs and other charges.

Example: Say two lenders both offer you a fixed 6% interest rate on a $400,000 mortgage. However, one has an APR of 6.25% while the other is 6.50%. On a 30-year loan, that 0.25% APR difference adds about $66 a month to your payment and over $23,500 in additional interest over the life of the loan.

5. Check Total Closing Costs

Closing costs are the fees you pay when your loan is finalized, typically ranging from 2% to 5% of the loan amount. Using the same $400,000 mortgage example, the closing costs could come out to $8,000 to $20,000.

You may find that a lender offering a low rate may be offsetting your savings by loading higher fees into your closing costs. Conversely, a no-closing-cost mortgage may mean the lender is covering these costs by charging a higher rate.

The quickest way to compare closing costs is to look at the "cash to close" line on each loan estimate that shows the total costs you must pay on closing day.

Learn more: How to Reduce Closing Costs

6. Ask About Basis Points

Your interest rate is measured in basis points. One basis point equals 1/100th of a percent, or 0.01%. They may seem tiny, but as we've shown, even a small difference can add up to thousands of dollars over the life of your loan.

Ask your lender how many basis points you could cut off your rate by increasing your down payment or buying discount points. Or you may be able to negotiate a drop in basis points if your lender will match a competitor's offer.

7. Calculate Long-Term Costs

To truly compare mortgage rates and determine which loan offer will cost you the least, you'll need to calculate what each loan actually costs over its full term. You can do this by multiplying your monthly payment by the total number of payments to get the total overall cost.

Your calculations may reveal, for example, that your $400,000 mortgage will actually include another $400,000 or more in interest charges. Knowing the true cost of your home is critical because:

• You see exactly how much interest you're paying on top of the purchase price.
• It can reveal when a mortgage with low payments can be more expensive with a longer term or fees that get rolled in.
• It helps you see whether paying points or fees upfront truly pays off in the long term.

Tip: A mortgage calculator can be a valuable tool to see a loan's full principal and interest breakdown along with your amortization schedule.

8. Negotiate

You may be able to negotiate a lower mortgage rate simply by asking the lender: "Is this your best rate? Can you do better?"

You also have negotiating leverage in the form of your loan estimates. Each estimate details the loan's interest rate and fees. If the lender you're most comfortable with has a higher interest rate or closing costs, ask them to match or beat a competitor's offer. Many times, mortgage companies will lower their rates or waive certain fees to keep your business after they see a written offer from a competing lender.

Frequently Asked Questions

Save Money by Comparing Mortgage Rates

Comparing mortgage rates can lead to substantial savings on your home loan, potentially saving you tens or even hundreds of thousands of dollars over the loan's term. Get quotes from multiple lenders and compare APRs and fees to find the best deal. And don't be afraid to negotiate for an even lower rate.

Before you start looking at houses, check your FICO^® Score^Θ and credit report for free through Experian to make sure your credit is sound. Your score will give you a better idea of the rates you'll qualify for and whether there are any issues worth resolving before you apply.

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