Comparing Loans
Loans are much more than interest rates. There are terms, points, fees, and
other factors to consider.
So how can you make sure you're comparing apples to apples when you want to
compare 2 or more loans? Here are some tips.
1.
The first thing you really have to decide is what kind of loan is going to work
best for you. Fixed rate or adjustable rate? Conventional? FHA? Fannie
Mae? Veterans? These decisions depend on your situation and goals (like how
long you plan to own the home). If you're not sure what kind of loan you're
shopping for, see Loan Types. Or talk to one of
our loan representatives by calling the toll-free number at the top of your
screen or contacting your local office.
They can help you decide what would be the best type of loan for you.
2.
When you have decided on the kind of loan you want, then you can begin making
true comparisons. In comparing two or more similar loans with the same term
(two 30 year fixed rate loans, for instance), start with the annual percentage
rate (APR). A loan with an 8.291% APR is less costly than a similar
loan with an APR of 8.460% over the life of the loan. Another way to look at it
is if the interest rate and APR of a loan are drastically different, the loan
has significant closing costs; the closer the interest rate and the APR, the
lower the closing costs. Ask your lender to confirm that all costs are included
in the APR calculation so you can compare apples to apples and not have any
unexpected surprises at closing.
3.
The next thing to look at is how much you're paying for each loan up front.
This can matter quite a bit if you're either planning to sell the house in less
than four years or you're trying to keep down your closing costs. Consider these
2 loans for $100,000:
 | | | | | | | | | A. 30 Year Fixed Rate for $100,000 |
| | | B. 30 Year Fixed Rate for $100,000 |
| | | | | | | | | | | | | | | | Discount Points
(dollar value) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Principal Reduction Savings of Loan B over Loan A After 2 Years |
| | | | | | | | | | | Payment Savings of Loan B over Loan A After 2 years |
| | | | | | | | | | | Total Savings of Loan B over Loan A After 2 Years |
| | | | | | | | | | Out-of-Pocket
Savings at Closing |
| | | | |
| | |
NOTE: Sample loans are for illustration only and are not a rate quote, pre-approval or commitment to lend.
In this example, Loan B is the better value over the life of the loan (as shown
by a better APR). Loan A is the better value if you know you'll sell the house
in just a couple of years since you haven't recouped the extra $1,000 for
discount points paid out of pocket at closing.
4.
A final consideration is your tax situation. Points can usually be
deducted for the tax year you purchase a home. Consider the case where you're
planning to live in a home for a long time and want to lower a rate with
points. You could give yourself a substantial tax deduction that year, plus
reduce the cost of the loan to you over the long term. Or, you may want to hold
on to your cash and take advantage of the tax deductibility that comes with a
higher rate each year. (Ask your tax advisor.)
Tips on Comparing Adjustable Rate Mortgages
Adjustable rate mortgages can be a little more tricky to compare because there
are so many out there with so many different features. Just make sure the
features match up.
| | Compare these ARM features |
| | | | | Rate caps (periodic and life of loan) |
| | | Financial index on which the rate is based (you want stability) |
| | | Length of period between rate adjustments |
| | | Conversion features (ability to change to a fixed rate loan) |
|
| | |
For more information on ARM features, see Loan Types.
Don't be swayed by rate alone
It's easy just to compare the APR of similar loans and make a choice. But
you're getting more than a loan. You're getting a long-term relationship with
your home loan company. You want to be confident that your home loan company is
properly handling your payments and accounts over the life of your loan.
Make sure you feel good about the company that's lending you the money and its
service. Consider asking if the company sells the servicing of its loans (i.e.,
handling of payments — many do) and decide whether you're comfortable with
that. Often it can inconvenience you, changing where you send your payments or
forcing you to set up a new automatic payment plan. Or, you may spend a lot of
time worrying about whether your payments were properly applied. At
Countrywide, we value our customers and continue servicing of our loans more
than 99% of the time.
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Equal Housing Lenders. © 2008 Countrywide Bank, FSB, Countrywide Home Loans Division. Member FDIC. Trade/service marks are the property of Countrywide Financial Corporation, Countrywide Bank, FSB, or their respective affiliates and/or its subsidiaries. Some products may not be available in all states. This is not a commitment to lend. Restrictions apply. All rights reserved.