LOS ANGELES -- Mortgages are at 25-year lows, but consumers must do their homework to get the best loan rates.
A recent survey of California lenders showed 30-year loans at interest rates between 6 3/8 percent to 7 1/8 percent. That rate difference represents about a $100 monthly savings on a $200,000 loan.
"You shop and you shop hard," said analyst Keith T. Gumbinger of HSH Associates, a mortgage rate surveyor in Butler, N.J. "You are responsible for getting the best deal for you."
Mortgage officials and consumer advocates offered the following strategies to get a competitive home loan:
* Loan type: Know what you need. There's little benefit in a 30-year fixed loan for borrowers who expect to move in a few years. Consider an adjustable-rate loan, or if that seems too risky, look at mortgages with fixed rates for five and seven years.
If your goal is to own your home outright, try for a 15-year fixed. Today's low rates mean you could make about the same payments but pay off your house in half the time.
"[Borrowers] need to pick the loan first and then go shopping," said Alice McCain, president of the San Fernando Valley Association of Realtors. The San Fernando Valley is an area of Los Angeles.
* Lenders: Ask a real estate agent for banks and mortgage companies delivering the best loans, not just promising the lowest rates.
"They have a good idea who is generally competitive," said Greg Lumsden, executive vice president of Countrywide Funding Corp. in Pasadena, Calif.
With so much refinancing activity, friends and colleagues are also a good referral source. Scan rate surveys in local newspapers or contact a company that publishes regional rates.
Don't limit yourself to one type of lender. Banks, thrifts, (x mortgage bankers and brokers are constantly changing their competitive focus. Sources of money change as well. A company that you refinanced with a year ago might not be the best for you now.
* Call around: Once you've got a list of companies that seem to be the most competitive, call them on the same day.
Lenders can change their rates daily. Rates gathered over a week or two aren't comparable.
"Two weeks is a very long period today for interest rates," Mr. Lumsden said.
* Lock-ins: "Get it in writing," Mr. Gumbinger said. A rate given over the phone isn't binding.
For lock-ins to be useful they have to be long enough. A two-week lock-in agreement might be enough for a refinancing, but 30 to 45 days would be better for a purchase. Government loans such as VA or FHA may take up to 60 days.
But in today's declining market you may want to forgo a lock-in if you're confident that rates will fall between the time you apply for a loan and when the deal closes.
"With the trend in rates it's almost better if you don't lock in," said Norma Garcia of San Francisco-based Consumers Union.
* Compare costs: There's more to a loan than just an interest rate. A low rate can be offset by high points and closing costs. A point is a lending fee equal to 1 percent of the loan amount. Find out what closing costs such as escrow and title insurance will be. Only when you know the interest rate, points and closing costs can you compare loans.
Low and no-cost loans, which fold points and closing costs into the loan in the form of a higher interest rate, are widely available. But while less money is needed up front, you may pay more over the long run. Average the cost of the loan over the time you expect to live in your house to find out whether you should pay points and fees up front.
"Otherwise you're leaving yourself open to pay more money," said Earl Peattie of Santa Ana-based Mortgage News Co.
* Be prepared: Gather all pertinent financial information such as pay stubs, bank account statements and tax returns.
"Be direct and honest about your financial situation," Mr. Lumsden said. "The whole process will move along more quickly and efficiently.
* Mortgage bankers and brokers: The market share of these companies have increased markedly following the savings and loan collapse.
Mortgage bankers are direct lenders that, unlike banks and S&Ls, only make mortgage loans.
"The larger mortgage banking companies have perfected access Wall Street [which] has the cheapest cash," Mr. Lumsden said.
Mortgage brokers represent multiple lenders and can shop your application around. Some people are reluctant to use a broker, preferring to do business with a major bank or thrift.
"There are very good mortgage brokers out there. It's worth finding out who they are," Ms. Garcia said.
Mortgage brokers can often deliver cheaper loans because their overhead costs are lower.
"The little guy could shave off the points," Mr. Gumbinger said. As with any other lender, ask around for referrals. Don't be afraid to interview a broker to find out his or her experience and phone numbers of recent clients.
All loan agents are regulated by some state or federal agency. If you have a grievance, file a complaint and be sure to follow through on it.
"We've found the squeaky wheel gets the grease," Ms. Garcia said.