If you’re shopping mortgage rates, here’s a simple tip to make it more advantageous.
Ask each lender, broker, bank, etc. for their no-cost option first.
This means their lowest interest rate with no lender fees, no points, and nothing rolled into the loan amount.
This will give you a clear picture of who is priced the lowest, and also make it easier to compare rates from one lender to the next.
Later, you can back into that rate and ask what it’d be if you paid points or fees or both.
Not All Mortgage Rates Are Created Equal…
We know from studies that there is a lot of rate dispersion in the marketplace.
Similar to virtually every other product and service out there, prices vary from one company to the next.
As do mortgage rates for one reason or another, whether it’s the costs incurred by the lender, or the profit they’re looking to achieve.
This means the same exact loan scenario with one lender could be priced at 6.50% or 5.75%, despite it being the same exact mortgage.
The variation in rates is the top reason to shop around, especially since a mortgage is a commodity.
It’s not any different from one lender to the next. A 30-year fixed from one bank is the same 30-year fixed at another bank.
This is 100% true once the loan closes since the loans will be quite literally the same, other than perhaps that interest rate and any fees paid.
The only real difference is the customer service during the loan process and the mortgage company’s ability to close the loan to begin with.
One issue with shopping mortgage rates though is they can be presented a bunch of different ways to make them appear more attractive.
For example, a bank can advertise a really low rate, but then ask you to pay two discount points AND lender fees, such as a loan origination fee.
The rate might be lower, but once you pay for it, it could be the worse option. You also would have to hang onto the loan (and the home) long enough to recoup the upfront costs.
Long story short, simply comparing interest rates isn’t good enough. We need the complete picture with fees included!
Why Starting with a No-Cost Rate Quote Is the Better Approach
If you gather mortgage rate quotes that don’t have any costs, including both points and lender fees, you can compare them much more effectively.
We’re kind of stripping down the rates to their bare-bones and removing any outside costs/fees.
Then we say okay, Bank A is offering 5.75%, Bank B is at 6%, and Bank C is at 6.25%.
Instead of being told from the beginning that Bank C is at 5.625% but with two points required and thousands in lender fees.
It’s simply easier to compare things when we’re actually comparing the same item all-in.
Multiple mortgage rate quotes with different fee structures are not the same. So it wouldn’t be fair to compare them at face value without accounting for the difference in loan costs.
So you start by asking each lender for the no-cost option, which means no lender fees, no points, and nothing rolled into the loan amount to make it appear cheaper.
You now have apples-to-apples quotes you can actually make sense of.
This is similar to shopping a car lease and asking three dealers for the zero out-of-pocket monthly payment.
If some advertised X payment but with $5,000 down, it skews things. If we get them all with no costs, we can more effectively compare them.
You Can Still Ask for Home Loan Options with Fees and Points Paid
The beauty of this approach is you can still get rate quotes with fees and points paid.
It’s just that you start with the no-cost option first to see where everyone stacks up.
Once you find out which lender is cheapest and which is the most expensive, you can fine-tune from there and ask for quotes with fees paid.
Say Bank A is the cheapest at 5.75% for a 30-year fixed but you want to go even lower.
Simply ask what the rate would be with one point paid instead of it being a no cost loan.
Or what it would be if you paid your lender fees out of pocket. Or both.
Another benefit to asking for the rate with nothing paid is you’ll appear more savvy to the loan officer or mortgage broker on the other end.
And they might be more likely to offer you their best rate upfront, knowing you’re shopping and looking for the rock bottom option without all the gotchas.
When we peel away all the classic tricks, like points and fees and rolling costs into the loan amount, the lender’s real pricing is exposed.
Before creating this site, I worked as an account executive for a wholesale mortgage lender in Los Angeles. My hands-on experience in the early 2000s inspired me to begin writing about mortgages 19 years ago to help prospective (and existing) home buyers better navigate the home loan process. Follow me on X for hot takes.