How Do I Get the Best Rate on a Mortgage?

Like buying any product, getting the best mortgage rate requires doing some homework. But it’s not as simple as shopping for a big-screen TV. You can research online and compare prices (rates)—but only up to a point. The actual rate you’ll pay depends on your credit score and other factors, like whether you’re buying a single-family home or a condo.

So shop around, but then check the fine print. Start at websites such as Bankrate and HSH, which allow you to search a database of rates submitted by lenders in your zip code. Then call a mix of national banks and local credit unions, especially if you’re an account holder. Some offer discounts to customers.

If doing the legwork yourself seems daunting, you can try a mortgage broker, who works with multiple lenders and can often find a better rate than you would on your own. The broker receives a fee for bringing in the business, which may be passed on to you in the closing costs or a higher interest rate.

Calculator: Which is better, fixed or adjustable-rate mortgage?

Speaking of fees, make sure to ask the lender for a full slate of anticipated charges. Fees for application, loan processing, appraisal and other closing costs can total as much as 5% of the loan amount, making that seemingly low rate a lot less attractive.

Once you apply, you’ll receive what’s called a Good Faith Estimate (GFE) within three business days. You can’t be charged for anything except a credit report fee before you tell the lender you intend to proceed. Keith Gumbinger of HSH suggests asking lenders if they’ll provide you with the GFE even before you formally apply for a loan. “If you can get a few,” he says, “you can really compare.”

The easiest way to lower your rate is to pay discount points up front. A point is equal to 1% of the loan amount. To determine whether paying points makes sense, weigh the cost of the points ($2,000 per point on a $200,000 loan) against the savings you’ll reap from the lower interest rate. The longer you stay in your home, the more paying points makes sense. Find your break-even point using the calculator at mtgprofessor.com.