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Some key tips regarding interest rates:
- It’s not the rate you need to know:When applying for a loan, never ask for just the “interest rate,” but always ask for the annual interest rate. The APR includes fees and costs and is the actual cost of the loan on an APR basis (if quoted accurately). The interest rate alone does not. So, you might get a quoted interest of 5.00%, but after fees and charges the annual interest rate is 5.50%.
- Check APR:Once you’ve quoted your APR, always check against a mortgage calculator (these are available for free online at places like bankrate.com) for accuracy. All you need is the loan amount, repayment and verification period. If the loan amount, repayment, and term you put in don’t match the Annual Percentage Rate (APR) you’ve been quoted, that means the loan amount has been misquoted and you need to find out the truth.
- The low price you see is not necessarily what you get:Don’t be fooled – the lower prices you see advertised are for the best qualified. That means 720-740 FICO or higher in today’s market, with a verifiable income, a maximum of 80% loan-to-value and a low debt ratio. As your credit score decreases and your equity utilization or debt ratio increases, your rate likely will too! Also, there are a lot of additional “premiums” for things like cash outs, condominiums, and the like.
- Rate is not the first consideration in many cases:Although APRs and APRs are important, what matters most is what you get for the rates and APR. You can get a good rate and a bad loan or a competitive rate and a great loan. It is about looking at more than just the price and payment, but also: the duration, tax costs, fees paid, the purpose of the loan and the overall cost or benefit. In other words, if you got a Greta rate, but extended the term of the loan, increased your taxes, paid unnecessary fees and didn’t take advantage of the best loan for your situation, it wouldn’t be beneficial (this happens most often in a rate and refinancing term). But if you cut your payments, terms, and taxes, reduce debt, save money upfront, improve your financial situation, and negotiate fair fees, you’ve done yourself a really great favor!
Let me leave you with this nugget of truth from Proverbs 24:3 – “By wisdom a house is built, and through understanding it is founded”