Loan Comparison Tool
The Ratelock loan calculator lets you let you take control of your loan options. Use it to compare rates between different loan offers or properties. It can also be useful for comparing down payments by simply plugging in different loan amounts. You can use the prepayment and refinance scenarios to plan ahead before you lock in a rate with a lender.
Comparing Banks
Comparing rates in 2024 can be challenging. There are many companies out there who may claim to allow lenders to compete for your business, but the reality is that these are all mortgage brokers that are likely highly incentivized to generate commissions, and are often in a conflict of interest with the customer. Our recommendation is to avoid these and instead reach out to as many banks as possible. Many have regional branches which you can use, but you can of course reach any of them by phone. Many of these branches are willing to service customers within a 100 mile in-state radius.Comparing Rates
In 2008, the jumbo loan was born, or at least that’s when the US government acknowledged that an awful lot of extra large loans were being issued, leading up to the financial crisis. Now in 2024, not only do we have jumbo loans in terms of principal, but we have jumbo rates. Let’s look at some examples using the Ratelock tool. Given a $500,000 property, which is not considered jumbo, let’s compare 6.86% interest from today to roughly 3% interest from a couple of years ago. The difference in total cost is $422,000 over 30 years. Now let’s take the smallest jumbo loan size for 2024 which is $766,550 and compare the same interest rates. A 6.86% interest rate will cost you $645,000 more than a 3% rate. Granted there are some tax deductions available for jumbo loans because of the high amount of interest paid yearly, but that’s still an incredible additional cost.Comparing Properties
The big question is always how much can I afford? This will always be a difficult question to answer, especially since it costs more to borrow more! The core mission of our loan tool is to answer this question, so let me throw out some examples. If we take a $500,000 loan and we compare it to a $400,000 loan, both at a 30-yr 6.86% fixed rate, the total cost difference is $234,000. Of course $134,000 of that cost is incurred by additional interest. Now let’s look at a $600,000 loan vs a $400,000 loan. Now the difference is $472,000. Now $272,000 of that is from interest. So you might think that $272,000 is not that much money over a 30 year period. You’d be right, except that because of the way that all loans are structured, the first 10 years have the new owner paying primarily interest fees. This means that the majority of the $272k is lost within just a few years. That’s not great and is the reason why prepayments are essential.Prepayments
The largest variable in total loan cost comes down to how quickly you are able to pay the loan back. Many lenders have no penalty for paying back portions of the loan early. Known as prepayments, these special payments pay directly toward the remaining balance of the loan. Unlike regular monthly payments, prepayments go 100% toward the principal of the loan. A monthly payment by contrast might only pay 10% toward the remaining balance, depending on how early the payment comes in the loan term.Prepay Early
One thing that’s extremely important to remember about prepayments is that the earlier you can prepay parts of the loan, the more money is saved from those early payments. The reason for this is two fold: At the beginning of the loan, the majority of your monthly payment goes toward interest fees. That means that for the first few years of home ownership the bank will almost wholly own the property, even with a standard 20% down payment. It is during this time that the largest impact can be made from prepaying. In our default prepayment scenario, you can see that prepaying just $5000 in the first 2 years of a $500,000 would save you an entire year of payments. https://ratelock.org/prepayment When a loan payment is made early, you are no longer responsible for the compounding interest that will occur. You may have heard financial advisors recommend saving for retirement early. With debt, compound interest on a loan basically works in reverse of this concept. However, if we remove significant portions of the loan principal, we also remove their compounding effects.Inflation
Inflation is a bit of a wildcard in long term loans such as 30 year fixed mortgages. Because the loans take place over such a long period of time, inflation begins to erode the benefits of prepaying or other efforts to pay down debt. At Ratelock, we still think that prepaying during the early term of a mortgage is a no-brainer. It’s later on in the loan where we need to start comparing principal vs interest on each payment to determine if it’s worthwhile.
