How to Get the Best Mortgage Rate

You’re about to buy a house, which is one of the biggest financial decisions you’ll ever make. To make the purchase happen, you need a mortgage. But not just any mortgage, preferably a mortgage with a great rate.

Getting the best mortgage rate involves more than comparison-shopping, though. It also involves understanding factors that influence your mortgage rate.

Why should you care about your rate?

Your mortgage payment isn’t only repayment of principal. It’s also repayment of interest. So naturally, a higher interest rate results in a bigger mortgage payment.

Here are a few tips to help you snag a low rate and keep your mortgage as affordable as possible.

Improve Your Credit Score

Postponing a home purchase until you have a high score is one of the best ways to qualify for a lower interest rate.

To improve your credit, pay your bills on time, dispute any negative errors on your credit report, and pay down credit cards.

Mortgage lenders use credit history to determine an applicant’s credit risk. People with the lowest scores generally represent a higher risk of default, so they’re often charged higher mortgage rates.

To know where you stand credit-wise, check your credit report before applying for a mortgage. It’s a good idea to order your credit score, too.

Even though it might be possible to get a mortgage with a score as low as 580 to 620 (depending on the specific loan program), consider waiting until you have a credit score in the 700s or higher. A high score indicates that you have what it takes to manage a mortgage responsibly. Plus, you’ll be able to qualify for the most favorable rates.

Save a Bigger Down Payment

Your down payment also influences your mortgage interest rate. Many home loan programs allow for low down payments, as low as 3% to 5%. However, borrowers who put down 10% or 20% have a lower loan-to-value ratio, and lenders may offer better rates to borrowers who put up more of their own cash.

Keep an Eye on the Market

If you’re thinking about buying a home, keep an eye on current mortgage rates.

Mortgage rates tend to fluctuate from year-to-year. Rates are higher some years, and lower other years. Of course, there’s no way to predict with any certainty what mortgage rates will do, but mortgage experts do make their predictions.

If mortgage rates are forecasted to drop soon, you may consider holding off on buying a home until rates decrease. You’ll not only save money, a lower rate increases purchasing power.

Then again, if experts predict that mortgage rates will increase, now might be the time to jump into home ownership. You can take advantage of a low rate before the market shifts.

Consider an Adjustable-Rate Mortgage

Fixed-rate mortgages are predictable and safe. But depending on your circumstances, an adjustable-rate mortgage might be a better choice.

Adjustable-rate mortgages typically start off with rates that are lower than a fixed-rate mortgage. You’ll receive a fixed-rate for a certain number of years, and then the rate will begin adjusting based on marketing conditions and your loan terms.

Each rate adjustment can result in a lower or higher mortgage rate, and for this reason, some people lean toward a fixed-rate mortgage.

An adjustable-rate mortgage typically works better for borrowers who plan to live in their homes for a shorter time frame.

Buy Discount Points

Consider buying discount points to get a better mortgage rate. These are fees paid directly to your lender in exchange for a lower mortgage rate.

Discount points aren’t cheap, though. One discount point can cost about 1% of your mortgage amount. And because it’s an upfront fee, buying points will increase your closing costs.

All the same, if you plan to live in the home for many years, the extra expense paid at closing can pay off. Discount points can lower your mortgage payment and save you thousands in interest over the life of the loan.

Bottom Line

Getting a lower mortgage rate is easier than many people realize, allowing you to save money and get more house for your money.

To learn more about our different home loan programs, and to see how you can qualify for a mortgage, give the experts at Blue Spot Home Loans a call today.