If you are shopping for a mortgage loan, what you need to compare is not only the interest rates that they are offering you. Besides the interest rates, a mortgage package consists of a quoted rate, points and closing costs.

The lender will charge you an up-front fee at closing which is called points. One point is equivalent to 1% of the total mortgage loan amount. These points are charged to you to lower or increase the interest rate on the mortgage loan. If you choose from amongst a number of rates by the same lender, you also need to compare the associated points and see which of the packages have the best deals.

Besides comparing mortgage loan rates and points among lenders, it is also important to compare closing costs. This usually consists of loan related fees, government recording, transfer charges and government recording. Loan retlated fees are fees that will be charged to you to process, approve and give you the mortgage loan.  In the end, the whole closing cost may add up to thousands of dollars.

Thoroughly investigate and compare all loan features besides the costs above. Here is a list of what you need to investigate and ask all the different lenders:

1. What is the maximum LTV?
LTV stands for Loan to Value. It is usually expressed as a percentage of the total loan amount you want to borrow compared with the value of the property (you want to buy or remortgage). For example: The value of your house is 180k and you would like to borrow 160k against the value of the house. If you put 20k down for a deposit, this will give you a 88% of LTV. Lenders usually have a maximum of 75%. In this case you will have to put down 45k in order to get a 160k loan against the 180k worth of the property.

2. Mortgage insurance payment.
Ask how much that would cost, if there are any payments to be made. Mortgage insurance payment will add up to your monthly mortgage repayment so you might want to know what kind of amount you will be paying every month.

3. Credit and cash reserve requirements.

Many lenders will require you to show prove of income or savings as cash reserve. Many borrowers may not have much in their bank account but have substantial savings in their retirement accounts. Often times they may be able to use these retirement accounts to document their income.

4. Qualifying Ratios

The qualifying ratio is used by mortgage lenders in determining the maximum amount of mortgage to approve. The qualifying ratio is the lender’s rule of thumb for determining a borrower’s Ability to Pay.

5. Lock in period

For each loan that you are comparing amongst lenders, you need to find out what the lock-in period is. A lock in period is a period during which the interest rate and points quoted to you will be guaranteed. It is common to find lock-in periods of 30, 45 and 60 days. The longer the period, the higher the price of the mortgage loan. You should look for a lock-in period that is long enough to allow for settlement.

6. Others

Also pay extra attention to their prepayment penalties and the availability and terms of conversion options. For example, are there any rate reduction options or options to convert an ARM to a fixed-rate mortgage.

When you start shopping for a mortgage loan and compare different lenders, make sure you compare the interest on the same day as they change daily and sometimes even a few times a day. Also it is important to compare loan products of the same type. It does not make sense to compare a 30-year fixed loan with a 15-year fixed loan; or compare fixed vs. adjustable.

Here is a great tool that you can use to compare rates and others amongst several lenders in your area at the same time http://www.bankrate.com/.

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