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The Smartest Way to Cut Mortgage Costs

By Nathan Hamilton - Mar 2, 2017 at 11:11AM

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This step could help you land a low mortgage rate and crush your budgeting goals.

A key on a table, attached to a key ring with a house on it.

Image source: Getty Images.

Perhaps the following scenario sounds familiar.

You've had your eye on a big-ticket item you want to purchase but aren't yet comfortable opening your wallet. You then scour the internet, jumping from website to website, to find reliable reviews and the lowest price, spending hours, if not days, getting comfortable that you're making the right decision. You finally pull the trigger, knowing you've landed the best deal possible. This discovery process is tedious, but it's also smart, especially knowing so much money is on the line.

The same can be said for refinancing a mortgage. In the following video, Motley Fool analysts Kristine Harjes and Nathan Hamilton, discuss why shopping mortgage rates is a budget-savvy move, what's involved, and how to get started.

Kristine Harjes: So we're here today talking about mortgages. And there is one way that to me stands out as the smartest way to save when you're shopping for a mortgage. Nathan, do you want to share it with us?

Nathan Hamilton: Yeah, absolutely. Essentially, it's very similar to what many people do when they're making a big purchase -- shop many different places. Review them. And typically with mortgages, it's smart to shop three to four lenders. And by shopping, it's not just window-shopping. It's actually going a step further and talking with those lenders -- figuring out, say, what your preapproval rate will be, the amount you can get, and understanding what costs are associated with that mortgage rate -- because one cost may be included with one mortgage lender but isn't included with the other one, so you're not necessarily comparing apples to apples.

And the reason why shopping for a rate makes sense from a mortgage lender is your housing payment -- rent, mortgage, whatever -- is your single largest monthly expense. If you get that wrong for, say, 30 years on your 30-year mortgage, and you're paying too high of a rate, it impacts your financial wealth, your well-being, everything more than you can actually realize, because you are compounding that money and paying interest in somebody else's favor, instead of compounding the money for your benefit, which is a huge advantage.

Harjes: So what seems like kind of a pain in the butt right now is actually so important over the next 30 years. For example, if you can get yourself a lower rate by just half of a percent, then that little bit of a discount on the national average median home will save you roughly $20,000 over the life of the 30-year loan. But there's one important thing to remember when you're doing this window-shopping, and that's to make sure that it's within a few-week period.

Hamilton: Yeah, and I'm glad you bring up this point, because it plays into FICO credit-scoring models. And the reason why it makes sense to shop within a few-week period is the FICO scoring models will look at it as one inquiry into your credit history, whereas if you shop over months, there are going to be multiple inquiries, which will impact your credit score negatively in the very near term.

So newer scoring models will account for that, and it's essentially a smart thing to do. Shopping three to four lenders plus is a very good, financially savvy move, and it is something that won't ding your credit score if you do it within a finite very few weeks.

Harjes: So when you are shopping around, what is on the table? What are you able to negotiate and what should you be looking for?

Hamilton: Practically everything. Rates. You can look at titling, insurance, all of those sorts of things. Any fee that is a line item on there is negotiable. It will vary by lender but, of course, you're not going to be able to get the best rate you always want, and you have to balance it with, "OK, I'm getting this. What does the lender have to give up as well?" It definitely is a balancing game.

Harjes: Right, but when you're shopping, you're giving yourself the power there, and you're making the lenders battle for your business, which is always a smart move.

Hamilton: Yeah, be the thing that they're coveting, not vice versa.

Harjes: Exactly. And for more information, you can go to, where you can compare and shop rates, and also get in contact with certified lenders.

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