One way that consumers can make comparisons between different mortgage loan rates is with the annual percentage rate. It is required by law that every mortgage company reveal actual costs of the home loan to any potential mortgage borrower, and this value is determined by a yearly mortgage rate. Because of the Federal Truth in Lending Law, mortgage lenders must be upfront about any fees and other costs associated with a home loan, and cannot hide thee within the mortgage rate.

The annual percentage rate, or APR, includes some of the various fees and insurance premiums that go along with the home loan. It can all be rather confusing. The mortgage rate on a 15 year home loan, for example, will be a higher mortgage rate than a 30 year home loan. This is because the mortgage points are spread out over a shorter time. The prepaid interest is also calculated into the annual percentage rate. Annual percentage rates vary from one mortgage lender to the next depending on which types of fees and charges are included, and there is no clearly defined method of calculating the prepaid interest and other home loan fees.

Some mortgages have a variable interest rate, which makes it even more confusing. In this case, the mortgage rate will be associated with a mortgage rate index. While the mortgage rate index is often assumed not to change, this is actually not the case. So the mortgage rate can’t really be compared from one mortgage rate quote to the next. The annual percentage rate also can’t be used to compare balloon payment mortgage loans, and doesn’t take prepayment penalties into account. 

Annual percentage rates should be used when shopping for the best mortgage rate quotes, but cannot be the only determining factor. Once a mortgage company appears to offer the best mortgage rates, the home loan approval process should begin with an interview in which the mortgage lender discusses the potential home loan. Some consumers may prefer to meet with the mortgage company before looking for the home itself, to figure out exactly how much they can afford and qualify for.

When applying for the lowest mortgage rates, the borrower will need a purchase contract for the house, unless they haven’t chosen a house yet. They will also need bank account numbers and bank information form the last three months, pay stubs, W2 withholding forms, tax returns for two years, credit card bills for the last three months, and other proof of paying debts. In addition, balance sheets and tax returns are required for self-improved people, as well as any gift letters from people that are helping to pay the down payment on the mortgage.

Searching for the best mortgage rates can be a challenge, but looking at annual percentage rates and other fees should help determine a few of the lowest mortgage rates that are available. After deciding on the best mortgage company, the next step is being prepared with the right documents.