Comparing home loan rates is one of the most intelligent financial decisions you can make. Seeing as buying a home is a significant financial investment, finding the best deal on your home loan can save you a considerable amount of money—up to tens of thousands of dollars—throughout your loan.
Whether you’ve already started the search for your dream home or you’re thinking about upgrading from your apartment, here’s everything you need to know to find the right home loan for you.
A home loan, also called a home mortgage, agrees with your mortgage lender to borrow a sum of money, which you agree to pay off over a set term. Depending on the specific terms of your mortgage contract, you’ll be expected to make payments on your mortgage/home loan either once a month or every other week.
Not all home loans are the same, and first-time homebuyers have multiple options when taking out a home loan. When choosing the right type of home loan for you, it’s essential to take your financial situation into account. Some popular kinds of home loans include:
- Fixed-rate home loans are the most popular type of home loan. Under a fixed-rate mortgage, the borrower pays the loan back to the lender over a fixed term with a fixed interest rate, meaning the interest rate stays the same throughout the loan. Fixed-rate loans are typically more expensive than variable-rate loans. However, fixed-rate loans are more reliable and predictable, especially for first-time homebuyers.
- Variable-rate home loans involve fluctuating interest rates over the term of the loan, unlike fixed-rate home loans. This means your monthly payments will increase when interest rates are high but decrease when interest rates are low. Some lenders offer lower interest rates during the first year to encourage borrowers to take out variable-rate mortgages.
- Interest-only home loans require homebuyers to make monthly payments covering the interest on the amount borrowed (the principal amount) for an initial time. This means that your monthly payments won’t go toward the amount borrowed for the set period, so your principal amount will not be reduced.
When searching for a home loan, it’s essential to shop around for the best deal possible to save money in the long run. Doing your homework can help you decide on the best mortgage lender and mortgage rates for your financial situation, but many homeowners fail to shop around for a home loan and settle for paying more than they have to.
Homeowners should shop around for three to four quotes before committing to a home loan to find the best deal. Because mortgage lenders compete with each other, having multiple offers can give you some leverage to negotiate for a lower interest rate, lower fees, or a better loan term.