How to obtain the best interest rate on your mortgage
For anyone considering purchasing a new home, whether it is a primary residence or an investment property, locking in the most attractive interest rate possible is going to be one of the top concerns. If you have started the process, then you probably understand that shopping for a mortgage loan that fits your needs is just a small part of the overall equation.
You have probably seen advertisements for touting very attractive interest rates, and in many cases, these rates may seem just too good to be true. Sadly, most borrowers will not meet the stringent criteria for these mortgages.
However, you should not let this fact discourage you when you are searching for the perfect interest rate on your new property. There are steps that you can take to help you lock in the best possible interest rate on your new mortgage.
One of the best things that you can do to ensure that you are receiving the most attractive interest rate on your mortgage is to make sure that your credit is in top shape. Mortgage lenders rely heavily on your credit history when considering whether or not to approve your loan and if approved, what type of interest rate you will be charged on your mortgage.
You should be open and honest about your credit history, because if problems are discovered later, your loan may not be approved. If you have credit issues, seek credit counseling with one of the many free programs available. Also, a past history of poor credit does not necessarily disqualify you for a mortgage – they are many programs available to help you achieve your dream of home ownership. You will just need to be diligent about cleaning up your credit and managing your finances.
Of course, after insuring that your credit is in the best shape possible, you will need to do your research and shop around for the best mortgage rate based on the type of loan you are trying to secure. For this , you will need several lenders to provide you with a ‘good faith estimate’. Using this information, you can compare the costs of each loan.
Another option to consider to help lower the cost of your mortgage is paying points. Points are an upfront fee quoted as a percentage of the total loan amount. By opting to pay points int advance, you can lower your interest rate by several percentage points in many cases. One point is equivalent to 1% of the principal on the mortgage. If you are considering paying points to lower the interest rate on your mortgage, then you should think about how long you plan on owning your home and your immediate financial situation.
When you are considering acquiring a new mortgage, you should keep in mind that rates are constantly changing and rates that are quoted one day may not be available the next day. You can avoid missing out on an attractive interest rate by requesting a rate lock on the rate quoted. Rate locks are normally good for 30 to 60 days. This enables you enough time to shop around and check out other interest rates, and if you decide to go with one of the first lenders you research, the rate you want is still available. You should be aware, though, that some lenders charge for this service.
When you are comparing mortgages with the same terms (i.e. 30 years) but with vastly different interest rates, make sure you understand the reasons why the interest rates are so different. For example, a fixed rate 30 year mortgage will be more expensive than a 30 year mortgage that has a balloon payment due in 7 years.
You will also need to be sure that you fully understand all of the fees associated with your mortgage upfront. Often, there is somewhat of a trade off between the loan fee (points) to acquire the mortgage and the interest rate on the loan. As discussed earlier, the more points you buy initially, the more your interest rate is reduced.
If you remember to keep these things in mind when shopping for your new mortgage, then you will not have a problem finding a mortgage the best interest rate.