The 2 Facts You Must Know to Get the Best Mortgage
Once you get a quote from a lender, to compare it to another quote, you can use the True Mortgage Value which takes the interest rate, points, and fees to compute a yearly rate for the mortgage cost for the length of time the borrower plans to hold the mortgage. This calculation is the sister to the APR which calculates the yearly cost of the mortgage for the whole term of the mortgage which is required by law to be disclosed by the lender due to the Truth in Lending Act. The APR minimizes the extent to which upfront costs such as points and fees are added to the borrower's cost, because these costs are "stretched out" to the maximum extent possible. Since over 50% of borrowers sell or refinance their home within 6 to 12 years and over 90% of borrowers do not hold their mortgage for their whole term, you will probably expect to hold your mortgage for less than its term. Use the True Mortgage Value Calculator at the bottom to save yourself thousands.
How to Chose the Best Quote
The best mortgage quote is the one with the lowest costs over your expected holding period. The True Mortgage Value allows you to compare the mortgage costs as a yearly rate for the length of time you plan to hold the mortgage.
This is why the True Mortgage Value is Better Than the APR to Compare Quotes!
Whereas the APR, Annual Percentage Rate, that you see so often, is a yearly rate of costs over the whole mortgage term, normally 15 or 30 years; the True Mortgage Value is the yearly rate of costs for the length of time the borrower plans to hold the mortgage. The APR is effectively the True Mortgage Value for the cost of a mortgage only when you plan on holding the mortgage for the whole length of its term. It is vitally important to consider the borrower's holding period when comparing mortgages because the yearly rate is determined by how long the paid points and fees are "stretched out" for borrower's expected holding period.
Which quote would be the best to select?
Let's say I received two quotes below.
| Quote #1 | Quote #2 |
| Interest Rate: 7% Points: 1 Fees: $1,000 Loan Amount: $100,000 |
Interest Rate: 6% Points: 3 Fees: $2,000 Loan Amount: $100,000 |
Both are for a $100,000 loan. Quote #1 has a higher interest rate but lower up front fees and points while quote #2 has a lower interest rate and higher up front fees and points. For your information, 1 point equals 1% of the loan and 3 points equals 3% of the loan and is a cost paid upfront.
To know that answer you need a measure of the true borrower costs as a yearly rate over the expected holding period of the borrower. Notice with the True Mortgage Value calculations below how the yearly costs associated with the points and fees are lower the longer you hold the mortgage because their costs are stretched out over a longer period. The True Mortgage Value actually depends on how long you plan to hold the mortgage and stay in the house. As you can see from the True Mortgage Value calculations below, quote #1 with the higher interest rate would be the most cost effective loan to go with if you plan on staying in the house less than 6 years because it has the lower effective cost for those years. Quote #2 would be the mortgage to go with if you planned on living in the house more than 6 years because it has the lower effective cost for those years.
| True Mortgage Values | ||
| Holding Period | Quote #1 | Quote #2 |
| 1 Years | 10.73% | 15.23% |
| 2 Years | 8.96% | 10.84% |
| 4 Years | 8.02% | 8.52% |
| 6 Years | 7.70% | 7.72% |
| 8 Years | 7.54% | 7.33% |
| 12 Years | 7.38% | 6.93% |
| 15 Years | 7.31% | 6.77% |
| 20 Years | 7.25% | 6.61% |
| 30 Years | 7.19% | 6.46% |
What does this mean in the Real World? If you were to go with quote #2 and stayed in the home for 15 years you would average paying $894.49 per month versus $916.80 per month for quote #1, as shown in our simple monthly payment calculator. The savings would be $22.31 per month which gives a total savings of $4,015.80 over 15 years. This is real money that you would otherwise be without, so it is vitality important to to compare quotes by calculating their True Mortgage Values.
You can receive mortgage quotes by filling out the form to the left. According to customer service studies, borrowers who shop multiple lenders tend to be the ones most satisfied with their lending experience. Once you get the quotes, input the Interest Rate, Points, Fees, and Loan Amount below to compare which quote is the best mortgage for your own expected holding period.
You must receive a good faith estimate of each expected fee at the time of application or within three days of application as required by RESPA, the Real Estate Settlement Procedures Act. After you have found the best quote for yourself using the True Mortgage Value, you may want to obtain a written lock-in from the lender or broker since without a lock-in, the interest rate can change all the way up to your closing date depending on changes in the market.
The most valuable thing we have is our good name. Your credit report is the most common reflection of your reputation as someone who pays bills on time and is financially sound. Most consumers rarely check their credit score until after they've been denied credit or otherwise encounter a problem.
The credit score evaluates the information in your credit report and compares this information to the patterns in millions of past credit reports to determine your credit score. The credit score is determined from the following 5 sections: 35% for how recent the delinquencies are and how many times they occurred, 30% for how large outstanding balances are and the ratio of balances to credit limits, 15% for the age of the oldest account and the average age of accounts, and 10% for the number of inquiries and new account openings.