I Got Multiple Quotes From Mortgage Lenders. Here's How Big the Difference in Rates Was

I am buying a new home very soon. Before I moved forward with the purchase, I got quotes from multiple mortgage lenders. I'm very glad I did, as the rates were dramatically different from one lender to the next.

Here's how much the rates differed and the steps you should take if you're shopping around for mortgage loans.

This was the difference in mortgage loans offered to me

Although I obtained all of my rate quotes over a one-week period, there was a huge amount of variation in the rates that were offered to me. In fact:

• The lowest rate I was offered was 6.25%. This was a great rate from a bank I have a pre-existing relationship and a lot of assets with.
• The highest rate I was offered was 7.86%.

That is a difference of 1.61%. And it makes a very dramatic impact on both monthly payment and total interest paid over time. How big of a difference? The table below shows the difference in monthly payment and total interest cost per $100,000 borrowed with a loan at these two rates for a 30-year fixed rate mortgage.

As you can see, shopping around really paid off for me. If I had not gotten multiple mortgage quotes, I could have ended up paying a lot more per month and over time for my home loan -- especially since, like many home buyers, I'm borrowing well over $100,000 to buy my property.

How to shop around for mortgage quotes

Fortunately, I knew I had to shop around and compare my options because I write about mortgages every day. But if you aren't experienced in buying a house or in home loans, it can seem daunting to get a bunch of rate quotes.

The good news is, the process is pretty easy. Here's what you need to do:

• Decide which lenders to compare rates from. You can start with your current bank, but should also look at credit unions and online lenders, as they sometimes offer more affordable loan options.
• Visit the lender websites to apply for a rate quote. You'll ideally want to look for a lender that allows you to get a rate quote without a hard credit check. This isn't always possible, though. The good news is, if you're shopping around for a home loan and get multiple credit inquiries, this usually won't damage your credit score too much because lenders and credit reporting agencies assume you're just comparing options.
• Compare apples to apples. When lenders give you a quote, make sure that it's always for the same type of loan. For example, if you want a 30-year fixed rate mortgage, be sure you're getting a quote for that from each lender rather than a 15-year loan or an adjustable rate mortgage. You'll also want to be sure you aren't being charged "points" by any of the lenders giving you a quote. Points allow you to buy down your interest rate by paying a percentage of your loan amount. They're sometimes worth paying but you don't want them included in your original rate quote, as it makes it harder to compare loan offers.
• Look at the APR. You'll likely be quoted both the interest rate and the APR, which is the annual percentage rate. This is a common financial term that reflects actual costs of borrowing after taking fees into account. The APR can help you get a clearer picture of total borrowing costs.

You should aim to get quotes from at least three different mortgage lenders, and ideally a few more, so you can see which lender truly offers you the best deal. This is going to take some time, but as my experience shows, it's well worth it.