What to know about the lowest mortgage rate

We are all trained to go after the lowest mortgage rate we can possibly find. It makes sense. Lower interest rate, lower payments, right?

Be careful with this logic. Mortgage companies know this about you. They know you're looking for the best mortgage rate and will advertise in such a way. You might see an advertisement for a $300,000 mortgage for just $700/mo. When you check the details, you find that it's a ridiculously low starting rate (like 1.25%) that jumps quickly. They are also building in interest-only payments and assuming you are making the minimum monthly payment which results in negative amortization. Next thing you know, that killer deal has you upside down and headed into foreclosure.

Another example of a bad low interest rate is when you have to pay too many points. Before we go any further, paying points can be a financial victory for you, so it's not necessarily a bad thing. But it has to be right for your situation. Typically, the longer you plan on staying in your home, the more benefit you will get for paying points. Use our points calculator to help determine if you should pay points or not.

An important tool that you need to analyze is the Good Faith Estimate. Lenders are required to send you this document and it should be a transparent look into your mortgage deal. It'll help you see if you are getting an honest and fair shake. Many people don't know how to read this document so it's a good idea to ask if you have questions.

Be alert and ask questions as needed and you'll end up with the lowest mortgage rate that fits your situation, not one that leads to financial trouble.