How to Find the Best Mortgage Rate for Your Situation
If you’re in the market for a home, it’s likely that you want to secure the lowest mortgage rate possible. Over the course of your loan, interest on your mortgage could cost thousands of dollars, so getting the best rate possible is essential.
Your interest rate is affected by several factors, including your credit score, down payment amount and whether or not you have a fixed or adjustable rate mortgage. It’s also important to take into account the cost of mortgage points as well as any fees associated with your loan.
Enhance Your Credit Before Applying for a Mortgage
Improving your credit score may enable you to qualify for lower interest rates on mortgage loans. A score of at least 620 is necessary for conventional loans, while those with 740 or above qualify for FHA-backed loans or government-sponsored mortgages like VA or USDA programs.
Increase Your Down Payment
Devoting at least 20% of the purchase price to a down payment can make an impact on both how much you pay for your loan and its length of repayment. Lenders usually grant lower mortgage rates to those borrowers who can make larger down payments, leading to faster home ownership.
Shopping Around When Considering a Loan
It is always beneficial to shop around for a mortgage. Doing so can help you locate a lender with lower rates and better terms than your current bank.
Start by estimating how much you can afford to spend on a house using an online mortgage calculator. After having your rough figure, speak with several lenders to compare their quotes and decide which option is best suited to your individual circumstances.
Consider Refinancing If You Can Afford It
Mortgage refinancing may save you money over the life of your loan by reducing your interest rate. With some luck, they could reduce it by several percentage points which could translate to thousands in savings in interest over its duration.
Choose a Shorter Mortgage Term to Reduce Your Payment
The term of your mortgage has the potential to impact both your monthly payment and total interest paid over its life. A shorter loan, like 15 years, may have higher monthly costs but could save thousands in interest over time.
Ask Your Mortgage Broker About Variable-Rate Options
A variable-rate mortgage is a loan that periodically changes its interest rate, such as every six months or year. These mortgages can be beneficial for homeowners who need the flexibility to adjust their loan terms when economic conditions shift or they decide they’d rather switch to another product like an FHA loan with lower rates.
Be Wary of “Discount Points”
Discount points are fees borrowers pay upfront to reduce their mortgage rate. Usually, they’re one-eighth to quarter of a percent of the mortgage amount and can reduce your rate by up to one percentage point.