Your interest rate is the most important factor in determining how much your mortgage is actually going to cost. Before you sign for your next home loan, make sure that you are getting the best possible interest rate. Even a few percentage points will save you thousands over the lifetime of your loan.
Fix Your Credit Score
If you have some time before you have to get a mortgage, work towards fixing any problems you have on your credit score. Pay down your debts, but don't necessarily work towards paying them off completely. Instead, try to make each balance close to a third of the credit limit on the account. Also, make sure any mistakes on your credit history are corrected. These will increase your credit score and lower your interest rate.
Use the Power of Competition
Of course, not everyone has the luxury of time when shopping for a mortgage, and you may be in a position of needing a home now. If you cannot work on your credit rating, do not be afraid to let lenders compete for your business. While lenders make thousands of dollars on the interest rate attached to your loan, they also make quite a bit on the closing costs, and this gives them a little bit of room to negotiate when it comes to your interest rates.
If you do not like the rate you are quoted by one lender, get it in writing, and then visit other
lenders to see if a better rate exists. Get those rates in writing, and then approach the first lender again and see if they will counter offer with a lower rate. You will not get them to lower the rate below the national interest rate for home loans, but you may be able to get some discount by offering to take your business to the competition.
Cautiously Consider Adjustable Rate Mortgages
Adjustable rate mortgages almost always have lower interest rates at the outset of the loan than their fixed-rate counterparts. With that being said, the catch to an adjustable rate mortgage is the fact that it will increase if the national interest rate increases. However, they usually lock in the interest rate for a period of time, so if you do not intend to be in your home for the long term, this can be a good way to lower your interest rate at the outset of your loan.
Consider Paying Points
If you pay points at your mortgage closing, you will lower the interest rate on the loan as a whole. Basically, points are pre-paid interest, and they allow you to pay in order to lower your interest rate. However, they are not always worth the cost, because they may cost too much to make the interest savings worthwhile. If you are not planning to stay in your home very long, the amount you will save due to the lowered interest rate will not cover the cost of the points. This strategy only works for homeowners who intend to stay in their homes for many years.
Fix Your Credit Score
If you have some time before you have to get a mortgage, work towards fixing any problems you have on your credit score. Pay down your debts, but don't necessarily work towards paying them off completely. Instead, try to make each balance close to a third of the credit limit on the account. Also, make sure any mistakes on your credit history are corrected. These will increase your credit score and lower your interest rate.
Use the Power of Competition
Of course, not everyone has the luxury of time when shopping for a mortgage, and you may be in a position of needing a home now. If you cannot work on your credit rating, do not be afraid to let lenders compete for your business. While lenders make thousands of dollars on the interest rate attached to your loan, they also make quite a bit on the closing costs, and this gives them a little bit of room to negotiate when it comes to your interest rates.
If you do not like the rate you are quoted by one lender, get it in writing, and then visit other
Cautiously Consider Adjustable Rate Mortgages
Adjustable rate mortgages almost always have lower interest rates at the outset of the loan than their fixed-rate counterparts. With that being said, the catch to an adjustable rate mortgage is the fact that it will increase if the national interest rate increases. However, they usually lock in the interest rate for a period of time, so if you do not intend to be in your home for the long term, this can be a good way to lower your interest rate at the outset of your loan.
Consider Paying Points
If you pay points at your mortgage closing, you will lower the interest rate on the loan as a whole. Basically, points are pre-paid interest, and they allow you to pay in order to lower your interest rate. However, they are not always worth the cost, because they may cost too much to make the interest savings worthwhile. If you are not planning to stay in your home very long, the amount you will save due to the lowered interest rate will not cover the cost of the points. This strategy only works for homeowners who intend to stay in their homes for many years.
Seb Frey
Seb Frey is a Capitola, California Real Estate Broker specializing in Santa Cruz Real Estate. He is fluent in Spanish and enjoys helping people find their piece of the American Dream in Santa Cruz. You can find Seb's blog at SantaCruzHomeBroker.com/blog.
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