Buying a Home – How to Bring Your Mortgage Rate Down
May 28, 2021
‘How to get low mortgage rate?’
This is a common question that every individual planning on buying a home has. The secret to getting the lowest mortgage lies in your planning. In this post, we will talk about how you can bring mortgage rate down with a little planning.
Let’s take a look.
Keep Your Mortgage Rate Down With These Simple Steps
- Maintain a Good Credit Score
If you are wondering how to get a lower interest rate on mortgage, then maintaining a good credit score is the first step.
Not only does your credit score help in your eligibility to get a loan, but it also plays a vital role in determining the interest rate as well. Simply put, your credit score is proof of your reliability in the eyes of the lender. A higher credit score means you’re more reliable and likely to pay on time and inversely, a low credit score means the opposite.
E.g. a person with a credit score of 620 would be eligible to get a mortgage rate of 5%. Whereas the same person with a credit score of 760 or above would get the same loan at 3.4%.
To maintain a good credit score, make sure you never miss your payments. It can take a while, but it will be worth it in the end.
- Consistency in Work History
A consistent, long-tenured work history is likely proof for lenders that you are an ideal candidate for a home loan. It reflects that you are getting consistent growth in your career. It also reflects that you have a stable source of income, and you will be able to repay the loan. Compare this to someone who has changed jobs many times recently. Lenders will see this person as unstable and less reliable. Since reputation and financial stability both play a role in determining your credit score, they are automatically going to impact your interest rates as well.
In many cases, the lender might require you to have at least six months of working history with your current employer. If you are planning to buy a home, and want to get the lowest mortgage rate for it, then it is advisable to maintain consistent employment status with one employer.
- Higher Down Payment
Another great way to bring your mortgage interest rate down during the whole home buying process is by putting in a higher down payment. There’s a simple logic behind it.
Mortgage prices work based on risk factors. By putting in more money as a down payment, you are bringing the risk factor down by a substantial value. For instance, a loan with a 5% down payment is certainly riskier than a loan with say 15, 20, or 30% down payment.
In fact, it is recommended to make a 20% down payment for the home. If you choose a lower percentage, not only will you have to pay a higher interest rate but the lender might also require you to purchase mortgage insurance which will add to your overall monthly payments.
- Loan Duration
The overall duration of the loan also determines its interest rate. As a rule of thumb, loans with a shorter duration have lower interest rates compared to the ones with a longer duration.
Therefore, if you want to bring down the interest rate of your loan, shorten the loan duration. It might increase the monthly installment but you may end up saving thousands of dollars in the long run. (Depending on the loan amount, of course).
- Loan Type
You will have the option to pick between adjustable-rate and fix-rate loans. If you are planning on taking a small-term loan, say for 5-7 years, it is always the best idea to go for an adjustable-rate loan. This is because adjustable-rate mortgages have lower interest rates in comparison to fix-rate mortgages.
This decision will largely depend on your financial circumstance. If you have a stable source of income, and you can afford a slightly higher amount in monthly payments then you can pick an adjustable-rate mortgage and benefit from the low rates of interest.
Always Shop Around And Compare Lending Institutions
Apart from doing all of the things we just listed, it is also vital that you shop around for a loan. You can get a good idea by going online and comparing what each institution offers. We recommend that you visit a few loan providers and talk to them in person to see what options they have.
Moreover, going to credit unions instead of traditional banks can be a great idea, since they tend to have lower fees than traditional banking institutions. Wherever you may choose to go, just remember to explore the options before settling down at one place.
The Job Does Not End Here!
Once you have a lower interest mortgage option, it is time to get in touch with a real estate agent and begin the search for your dream home. You can check out one of our posts on warning signs to look for when buying a home to make your search more effective.
If you are looking to make your home buying process easy, and get the best deal for your dream home, it is recommended that you get in touch with an NRP or a Negotiator Recognized Partner. From negotiating on your behalf to getting the best home deal for you, an NRP will help you with all this and a lot more.
So, are you ready to go home shopping?