Securing a mortgage is a significant financial decision that can impact your budget and long-term financial goals. One of the most crucial factors in determining the cost of your mortgage is the interest rate you receive. A lower interest rate can save you thousands of dollars over the life of your loan, making it essential to explore strategies for securing a better mortgage rate.
While interest rates play a vital role in determining the price of your mortgage, there are other actionable tips and advice to help secure a more favorable interest rate for your home loan. This article will provide several tips to help you make informed decisions and save money on your mortgage.
#1 Understand The Fees Involved
Understanding the mortgage fees is crucial for obtaining a better rate. While interest rates often take center stage, it’s essential to consider the various fees associated with the loan process. These may include origination fees, appraisal fees, application fees, and closing costs. By thoroughly understanding these fees and negotiating where possible, you can reduce your overall borrowing costs and qualify for a lower interest rate.
Be sure to ask your lender for a breakdown of all fees involved and compare offers from multiple lenders to ensure you get the best deal. Additionally, consider how different loan terms and structures may impact the fees you’ll pay over time and factor these into your decision-making process when securing a mortgage rate.
#2 Understand How The “Lock-In” Process Can Affect Your Interest Rate
When you get a quote for a mortgage, each lender will offer a “lock-in period” in which the lender guarantees the interest rate for your mortgage stays the same. Because interest rates fluctuate so often, this “lock-in period” ensures that you pay the same rate you initially offered should you take out a mortgage with that lender.
If you need a more extended lock-in period of two months, many lenders will charge a higher interest rate for that provision. For this reason, it’s a good idea to be sure about the closing date of your sale so you can avoid missing out on the lock-in period or having to ask for a rate-lock extension.
#3 Understand How Your Credit Score Affects Your Mortgage Rate
Generally, a better credit score means a better mortgage rate, but preventing damage to your credit score while shopping around for a mortgage is essential.
Every lender will want to know your credit score and see your credit history. The good news is that every inquiry of the same type (mortgage in this case) will only count as a single inquiry on your score. However, if you have other types of credit pulled, like furniture or auto financing, then too many inquiries into your credit history can lower your credit score. It is best to hold off on additional funding until your home purchase loan is complete.
Of course, shopping around and comparing rates is always essential when looking for the best mortgage deal. A mortgage rate that looks good initially could be bad because of hidden fees and other cost factors.
#4 Increase Your Down Payment
A larger down payment can lower your loan-to-value (LTV) ratio, which is your loan amount compared to the property’s value. A lower LTV ratio reduces the lender’s risk and may qualify you for a lower interest rate. Aim to save for a larger down payment to secure a better mortgage rate.
#5 Consider Buying Points
Mortgage points, or discount points, allow you to pay upfront to lower your mortgage interest rate. Each point typically costs 1% of the loan amount and can reduce your interest rate by 0.25% to 0.50%. Calculate whether buying points make financial sense based on your plans to stay in the home and the potential savings over the life of the loan.
#6 Choose a Shorter Loan Term
Shorter loan terms, such as a 15-year mortgage instead of a 30-year mortgage, typically come with lower interest rates. While your monthly payments may be higher with a shorter loan term, you’ll pay less in interest over the life of the loan and build equity faster. Consider your financial goals and budget when choosing the correct loan term.
Conclusion
Securing a better mortgage rate is within reach with careful planning, research, and negotiation. Whether you’re improving your credit score, shopping around for the best rates, or understanding the fees involved, each step plays a crucial role in securing a better mortgage rate.
With diligence and proactive efforts, you can secure a mortgage rate that aligns with your financial goals and sets you on the path to homeownership with confidence.
Marimark Mortgage
Marimark Mortgage is based in Tampa, Florida, and proudly serves homebuyers and homeowners in all of Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA, and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients to lower their monthly mortgage payments.
To get started with a mortgage to buy your next home, please fill out our Quick Mortgage Application, or contact us direct.
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