When it comes to financing your home, a complete understanding of certain financial principles will help you get the lowest mortgage rates. For example, you should know that your credit rating can determine what type of mortgage interest you qualify for. It is also important to understand what types of mortgages are available, what their drawbacks and advantages are, and which ones have the lowest interest rates.
Five Ways To Get The Lowest Mortgage Rates
There are many ways to get a lower interest rate on your mortgage, each with its own advantages and disadvantages. If you’re looking for the lowest mortgage rates possible, here are a few steps to follow:
1. Consider more than one type of mortgage.
While most people look for fixed-rate mortgages when purchasing, other types of mortgages can offer lower interest rates, especially at the start. It is certainly true that fixed-rate mortgages offer a stable and reliable interest rate that will not scare you years later, but that does not mean that they are the right option for every consumer.
For example, with a variable or variable rate mortgage, consumers start at a fixed rate that lasts one to ten years and then fluctuates at a variable rate based on current rates. Since adjustable-rate mortgages (ARMs) tend to offer lower interest rates initially, 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 are given to those with the best credit ratings, that simple. In general, a credit score of 720 or higher is considered “excellent” and you will need it to qualify for the best mortgage rates you have seen advertised.
If you want the lowest mortgage rates, but your credit is good or bad, you can pay to find ways to increase your credit before applying. This can mean paying down consumer debt to reduce your credit usage, getting a credit card and using it responsibly to add some meat and reporting history to your credit report, or the deletion of old standard accounts.
3. Buy points.
In the mortgage world, a “point” is an initial commission you can pay to lower the interest rate on your mortgage. Generally, each point is equivalent to 1% of the total amount of the mortgage. For example, with a $300,000 mortgage, each point would cost $3,000 in advance.
While buying points can be a waste if you only want to keep your mortgage for a few years, buying points can save you a lot of money if you keep your mortgage long term. If you now pay $2,000 to lower your interest rate by a quarter of a point (for example, from 4.0% to 3.75%), you can save $10,000 in interest on a full 30-year mortgage, but only if you have stayed in this house for 30 years.
It is therefore important to consider how long you will keep your mortgage before choosing this route. If you plan to sell your home quickly, it may not be worth buying points.
4. Check if you are eligible for special programs.
Many programs have been introduced over the years to increase homeownership and make it more affordable. These programs include FHA loans, VA loans, USDA loans, HUD programs, and special loans for first-time buyers.
Depending on your situation, the amount you need to borrow, and whether or not you have had a home in the past few years, you may be able to benefit from a lower down payment, special financing, etc.
5. Save a bigger deposit.
If you are concerned about the best interest rate, it may be worth saving a larger down payment for your home. Banks and lenders love a big down payment, which means that if you don’t pay off the loan, you’re not going to take such a risk for them, so they usually reward a full down payment with better interest rates.
A higher down payment can not only help you qualify for the lowest interest rates and the best mortgage rates available but also to avoid paying a PMI or private mortgage insurance.