Comparing Loans: How to Compare Mortgage Companies and Loan Products

Even after hundreds of Mortgage companies went out of business during the real estate bust of 2006-2008, there are still plenty of mortgage companies out there. Should you shop around? Probably, but the shopping process is time consuming and should be done quickly, as interest rates change daily.

Unfortunately, the plethora of loan programs out there makes it difficult to compare one type of loan against another. Before shopping for rates, you’ll first want to determine what kind of loan will work for you. Read through this website to educate yourself first. And then, when you are ready to obtain a loan, call 2 (or more) lenders, and compare the same loan program between both lenders.

Suppose you are comparing a simple 30 year fixed rate loan between 2 lenders. You’ll need to find out the following information:

The Interest rate. Make sure the interest rate is for a 30-year fixed rate loan. This means that there will be no changes in the interest rate for the life of the loan.

Fees charged by the lender. These are the fees that are related to the loan, such as broker fees, loan origination fees, appraisal fees, application fees, etc. It shouldn’t include costs that might be mixed in for closing fees, including escrow fees, title fees, etc.

Use the Understanding Home Loans Which Loan is Better calculator to enter the loan amount, the interest rate, any origination fees or points (expressed in a percentage of the total loan amount) and any fees charged by the lender.

Suppose lender 1 offers a 5% interest rate, with a 1% origination fee (which is a fee that the lender charges for handling the loan) and $750 in loan-related closing costs. Lender 2 offers a higher interest rate of 5.25%, with no origination fee and $1300 in closing costs. Which lender should you choose? You can use the Which Loan is Better calculator to determine which loan is less expensive. The chart below shows that, if you held the loan for the full 30 years, you would pay $5,537.55 less in interest and fees for Loan #1.

Comparing Loans

But, don’t stop your analysis here. You can use the Monthly Payment Calculator to determine how much interest you’ll pay for the number of years you think you’ll be in the home. The Monthly Payment Calculator shows that at an interest rate of 5%, you will pay $4966 in interest the first year. With an interest rate of 5.25%, you will pay $5216 the first year.

Mortgage Calculators: