Selecting the Best Mortgage Rate

Finding the best mortgage rate may not be as easy as simply identifying the lowest interest rate (30 year mortgage rates) available.   The criteria a mortgage shopper should apply must begin with the question of how long they plan to hold onto the mortgage and retain ownership of the property.  There is no reason to consider the option of paying points and fees to buy down the interest rate when a borrower does not plan to own the property long enough to re-coup (or at least break even) on the closing costs.  The second criteria that should be used in determining whether to buy the interest rate down by paying point and fees, is whether a borrower is refinancing (refinance mortgage rates) or purchasing the property in question.  When refinancing, points and fees have a different tax treatment than if the transaction involves a purchase.  Deducting points and fees typically has a more favorable tax treatment in a purchase transaction rather than in refinancing when the deduction of points is normally amortized over the life of the loan and not deducted in the year they are paid as is typically the case in a purchase.  

Another criteria frequently used to determine the best mortgage rate is APR or the Annual Percentage Rate.  The purpose of the APR is to give the mortgage consumer a basis of comparing several loans by examining the total cost of the loan, including some specific costs, over a period of time by reflecting some of those costs in the interest rate (30 year mortgage rates).  The problem with the APR is that it is not required to be calculated the same way across the board, for instance one area were lenders can differ dramatically when it comes to quoting APR, is the number of days of pro-rated interest they use when arriving at their APR calculation.  Pro-rated interest is the number of days remaining within a month that you will pay interest after your new loan closes, for example if your loan should close on the 15th of the month then you would have 15 days (or 16 if the month has 31 days) interest remaining to pay on the new loan.  The problem with lenders including the pro-rated interest in the APR is that there is no uniform requirement for how it is quoted.  Some lenders use 15 days in their calculation and some may use 30 days, a few may even use zero days of pro-rated interest in their APR calculation so it will appear (somewhat deceptively) to be the lowest among their competitors. (continued)