How I locked in a historically low mortgage rate without getting lost in research, voicemails, and paperwork.
By Brad Beckstrom
I’ve been putting it off. Mortgage rates are at historic lows and, on paper, it made a lot of sense to refinance my current mortgage to a 10 year mortgage available at a lower fixed rate. It’s just that even thinking about my past experiences with refinancing both my home and some rental properties gave me gas. I knew I needed to get it done, especially since I’m always telling people to cut their largest expenses first. Our mortgage is our largest expense.
I’d made some mistakes in the past, like listening to some TV ad and then going to a website like Lendingtree. They say they’re going to find you the lowest rate but in fact they are getting all of your information and giving it to banks, selling your name as a lead. Immediately your phone starts to ring off the hook from banks you’ve never heard of. Luckily I gave them a Google voice number that sends all these folks directly to a digital voicemail graveyard. The messages are transcribed for me in a Gmail account and I quickly delete them in bulk. But, the calls kept coming for months. So, the lesson here is don’t give your loan or refinance information to any consolidator site, claiming to “find the best rate” or “do the work for you.” In fact, take this one step further: don’t share any of your personal information, email, phone number, address, income etc. with any mortgage site, including companies like Quicken Loans. Or any other big banks that bombard you with national TV ads. There’s a reason they can afford to advertise on the Super Bowl.
When it comes to finding a great mortgage rate, you’ll actually save time by doing it yourself, and you won’t have to share any personal information. Here’s a few steps I recently used to lock in a fixed 2.37% rate on a 10 year mortgage. With rates this low there’s really no benefit in getting an adjustable rate loan.
- Use a high quality online calculator that does not require you to share any personal information and allows you to compare multiple combinations of bank fees, points, and interest rate scenarios based on the state you live in. I’ve used mortgage and loan calculators on Bankrate.com and have never had to share any personal info.
- While you’re on bankrate.com, have a look around. Some of the things I look at are the rate trend nationally versus mortgage rate trends in my state. Once I decided to refinance, I didn’t rush into it. I watched the rates rise and fall over the summer but when they took a deep dive late in September, I pounced. The first two tabs on the site are mortgage and refinance. Read the articles and use the calculators but don’t click on any banner ads these will take you to the broker or consolidator sites I warned you about.
- Go directly to the mortgage rates page and fill out the general info. You’ll get a tidy list of banks that you can sort by lender, interest rate, and payment.
- Sort by rate and take a screenshot of that page. You’ll want to refer to this later. Pay close attention to the fees and the monthly payment. Understand the banks will also add additional fees or points depending on the loan you choose.
- Pick no more than three banks that look attractive to you and visit their sites. One thing you notice right away is that every bank has multiple rates on the same loan. The banks that have zero fees are simply building these fees into the loan which creates a higher monthly payment.
- I found a local credit union I’d heard of, that just happened to have the best low rate and fee combination. I used the loan comparison tool to compare that to one other option.
- It’s never a bad idea to just email your existing lender and ask them if they can match the rate. The quick answer I got was no. I also reached out to one other bank that promised to match any rate out there. They also said they couldn’t match the low rate or fee structure I have found that the local credit union.
- I felt good about my rate and was ready to roll. I filled out the info form and called the loan officer. After collecting some basic information he was able to lock in the rate for me.
I spent about five hours on this entire process and in the end it’s going to save me about $320 per month for the next 10 years! Not a bad ROI for my time. I was also lucky enough to get a good loan officer who explained the options I had on this loan for early pay off, if I chose to do so. I’ve always liked the idea of having a completely paid off mortgage but with a rate as low as 2.37% I’d be better off leaving that money in a total market stock or bond index fund where over 10 years I would earn significantly more. If you get the sinking feeling the market is headed for trouble, you can always use some spare cash to pay down your mortgage early. In this case, the calculation is pretty simple. Would your money earn more than 2.37% on average in the market over the next 10 years? If you believe it will, then you don’t need to pay off the mortgage early. Just make sure you have the option to prepay without any penalties.
One last tip
If you’re looking at a 10 or 15 year mortgage, or have about that much time left on your existing loan when you refinance, ask the bank if you can avoid escrow payments. This means you will be responsible for paying your homeowners insurance and your taxes several times a year. If you’re saver, this makes a lot of sense. With escrow the banks are asking you to give them this money in advance on top of some additional (calculated tax increase) dollars that always seem to work in their favor. Your request might be turned down but if you have a lot of equity in your home and the bank allows this, it’s worth considering.