Shopping Mortgage Rates

Keeping an eye on mortgage rates before buying will save you hundreds of dollars. A half-point reduction in rates to 6 percent, for instance, will lower your monthly principal and interest payment by $30 on a $100,000 mortgage. Some helpful ways to shop for mortgage rates include:

• Time the interest rate cycle. Mortgage rates change daily, depending on supply and demand and the levels of other interest rates, particularly rates for U.S. government securities. Understanding the interest rate cycle—how rates rise and fall over weeks, months and years—will help you to pick the right time to look for a mortgage loan. Rates often move in a wave-like fashion between peaks and troughs. When rates are near their lows, mortgage lending activity is high. As rates climb, activity subsides as qualifying for more expensive payments becomes more difficult. To see historic mortgage rates, visit Freddie Mac's Web site for its Primary Mortgage Market Survey (PMMS), which has nearly 30 years of rate history for 30-year fixed mortgages and more than 15 years of rate history for one-year ARMs.
• Receive mortgage rate alerts. Many online mortgage lenders will e-mail mortgage rates to you everyday. This is useful for monitoring rate trends.
• Be aware of the tradeoff in rates and loan points. Loan points are prepaid interest that lenders charge at closing, with one point equal to one percent of the loan amount. If you're willing to pay a point upfront, your lender will lower your mortgage rate. You need to decide how long you expect to live in the home to calculate if paying more points is better for you. JDPower.com can help you compute the benefits of paying more points upfront in exchange for a lower mortgage rate.
• Compare annual percentage rates. To compare current mortgage interest rates, look at the annual percentage rate. The APR is your true interest cost.

Use mortgage rate locks. Mortgage lenders generally quote you a mortgage rate that is good for 30 days. This is a standard rate-lock period. You can ask a lender for a 45- or 60-day rate lock (you might pay a slightly higher interest rate since the lender is exposed for an additional 15 or 30 days to the possibility of an increase in his cost of funds).