Comparison shopping is the key to getting the best price at just about anything you can name. Why is it, then, that people who will hit five different stores to get the best deal on a $500 computer are afraid to comparison shop when they're making the most important purchase of their lives? If you're in the market for a home, comparison shopping for your mortgage is the single most important thing you can do to cut your costs. When you're dealing with hundreds of thousands of dollars and up to forty years, a fraction of a percentage point in interest payments can save you thousands of dollars over the life of the loan.

How much you can save by shopping around for mortgage quotes

Because the 'prime lending rate' is easily available in the newspaper, online and at banks, people make the assumption that there is a standard lending rate. The fact of the matter is that every lender has its own standards for evaluating borrowers. While larger lenders and 'safe' lenders like banks may offer most of their loans at the same rate to people with specific credit scores, many non-traditional lenders are far more flexible with their lending rates. In addition, since every lender has their own 'preferred' lender profile, the same borrower may see variances as high as .5% between lenders. One half of one percent may not seem like much, but those tenths of a point add up over the life of a forty year mortgage. How much? Take a look:

EXAMPLE: $250,000 mortgage over 40 years

Interest Rate Monthly Payment Total Repayment
5.75% $1,332.22 $639,465.60
5.25% $1,247.18 $598,646.40
0.50% $85.04 $ 40,819.20

In other words, one half of one percent can save you $85 a month, or a total of nearly $41,000 over the life of the loan. Imagine what you could do with $1,000 a year? The monthly savings is only a start, though. If you take that $85 and put it into savings or investments at a mere 6.5% per month, at the end of forty years, you'll own your house outright, and you'll have $ 196,260.25 in savings.

Convinced of the value of shopping around for the best interest rate? Then let's talk about how to effectively shop for the best mortgage interest rate.

Comparing Mortgage Rates - How Many Is Too Many?

Are there disadvantages to shopping around and getting free mortgage quotes? There are disadvantages to everything, but the up side to comparing mortgage quotes far outweighs any down sides. The disadvantage that you'll hear most often is that checking with too many lenders can damage your credit score. Many lenders will tell you that this is more myth than fact, but there is some truth to it. Here's how shopping around for a mortgage quote is supposed to damage your credit rating:

Every time you ask for a mortgage quote, the lender asks for your credit report to check your credit score so that they can evaluate you as a lender and offer you a rate based on your credit score. However, one of the things that is counted when calculating your credit score is the number of times that your credit report has been accessed by lenders recently. If you've applied for many credit cards and loans in a short period of time, it can lower your credit score as lenders assume that you're taking on a lot of debt or searching frantically for money.

A canny lender can tell the difference between someone applying for multiple loans and a savvy shopper searching for their best deal on a mortgage. Most lenders would prefer to lend to a borrower who does their homework. You can also minimize any damage to your credit rating by asking lenders to do a “quotation check” on your credit report. A quotation check is not recorded as a loan application on your credit report, and has no effect on it.

With that in mind, the only real limit on the number of quotations you ask for when shopping for the best mortgage rate is your time and patience. You can cut down on the amount of work you have to do by using an online mortgage quote comparison site, or a mortgage broker. The online comparison site will generally have you fill out a short application, and then send your application to up to five local lenders who will contact you about your needs. A mortgage broker will take a commission or a fee for finding the right loan for you, but may be aware of which lenders are most likely to offer you a good interest rate.

In the end, the choice is yours. There is very little reason to limit yourself to one or two mortgage quotes and about 40,000 reasons to shop around for as many quotes as possible.

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About Author: Brain Jenkins is a freelance writer who writes about topics pertaining to the mortgage industry such as a Mortgage Company.