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السبت، 24 سبتمبر 2016

How to Get the Lowest Mortgage Rates Possible

When it comes to financing your home, a basic understanding of certain financial principles will help you get the lowest mortgage rates. For example, you should know that your credit score might determine what kind of mortgage rate you qualify for. Also, it’s crucial to understand the different types of mortgages available, what their drawbacks and benefits are, and which ones come with the lowest rates.

Seven Ways to Get the Lowest Mortgage Rates

There are several ways to get a lower rate on your mortgage, each of which has its own pros and cons. If you’re angling for the lowest mortgage interest rates possible, here are a few steps to consider:

1. Consider more than one type of mortgage.

While most people look to fixed-rate mortgages when they shop around, other mortgage types can offer lower rates – especially at first. It’s certainly true that fixed-rate mortgages offer a steady, reliable interest rate that won’t creep up on you years later, but that doesn’t mean they’re the right option for every consumer.

With a variable- or adjustable-rate mortgage, for example, consumers start with a fixed rate that lasts anywhere from one to 10 years, then float into a variable rate based on whatever the current interest rates. Because adjustable-rate mortgages, or ARMs, usually offer lower rates to start, they can be attractive options for people who plan to refinance or move after the first few years.

2. Improve your credit score.

The lowest mortgage rates go to those with the best credit scores, it’s as simple as that. Generally, a credit score of 720 or higher is considered “excellent,” and you’ll need it to qualify for the best mortgage rates you see advertised.

If you want the lowest mortgage rates, but your credit is nonly fair or poor, it can pay to look for ways to boost your credit score before you apply. That could mean paying off consumer debts to lower your credit utilization, getting a credit card and using it responsibly to add some reporting history and meat to your credit report, or clearing up old accounts in default.

3. Buy points.

In the mortgage world, a “point” is an upfront fee you can pay to lower the interest rate on your mortgage. Generally speaking, each point is equal to 1% of the total mortgage amount. On a $200,000 mortgage, for example, each point would cost $2,000 upfront.

While buying points may be a losing proposition if you only plan to keep your mortgage for a few years, purchasing points can be a huge money-saver if you’re keeping your mortgage for the long haul. Paying $2,000 now for a quarter-point reduction on your interest rate (dropping it from 4.0% to 3.75%, for example) could save you $10,000 in interest over a full 30-year mortgage — but only if you stay in that house for 30 years.

That’s why it’s important to consider how long you’ll keep your mortgage before you choose this route; if you plan on selling your home quickly, buying points may not pay off.

4. See if you qualify for special programs.

Over the years, many programs have been introduced to help boost homeownership and make it more affordable. These programs include FHA loans, VA loans, USDA loans, HUD programs, and special loans for first-time home buyers.

Depending on your situation, the amount you need to borrow, and whether or not you’ve owned a home in the past few years, you could qualify for a lower down payment, special financing, and more.

5. Save up a larger down payment.

If you’re worried about getting the best interest rate, saving up a larger down payment for your home can help. Banks and lenders like a big down payment – it means you’re not as big of a risk to them if you default on the loan – so they’ll typically reward a full down payment with better interest rates.

Not only can a heftier down payment help you qualify for the lowest rates and best mortgage terms available, but it can help you avoid paying PMI, or private mortgage insurance. By saving up at least 20% of the home price for your down payment and avoiding PMI, you can save around 1% of the total amount of your mortgage.

6. Shop around.

While you may be partial to your existing bank or credit union, you should always shop around to find the best mortgage. Your mortgage rate can vary drastically depending on the mortgage lender or bank you choose.

Start the process by checking with your local mortgage banker, then your personal bank and credit union. You can also compare mortgage quotes online. Make sure to compare not only your interest rate but mortgage fees as well.

7. Choose a mortgage with a shorter term.

While the fixed-rate, 30-year mortgage is popular among those who want a lower monthly payment, you can consider a fixed-rate loan with a shorter term, such as 15 years. Not only will a shorter mortgage term help you own your home faster, but it can help you qualify for a far lower mortgage rate, too, saving you thousands and thousands of dollars in interest over the life of the loan.

When you choose a shorter mortgage term, you’ll have to endure a larger monthly payment, however. Make sure to compare options, monthly payments, and interest rates to find a comprehensive mortgage package you can afford.

Final Thoughts

A lot of factors come into play when it comes to qualifying for, and securing, the best mortgage rates out there. The most important steps you can take are getting your credit in good shape, shopping around among different lenders and banks, and reading all the fine print. And when in doubt, contact a qualified mortgage expert for help.

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