Purchasing a home is one of the biggest financial commitments you’ll ever make. Do your research to get the best mortgage rate available to you.
Shopping around for a loan can result in savings of hundreds or even thousands of dollars over the life of your mortgage. According to Freddie Mac’s research, getting just one additional rate quote on average could save you $1,500 on average.
Lower Your Interest Rate
If you’re purchasing your first home or refinancing an existing mortgage, there are a few tips to help get the best deal on your loan. A lower interest rate can drastically reduce your monthly payment and save thousands of dollars over its term.
The mortgage process begins with you filling out a loan application and providing financial documents. Lenders use these to review your entire financial history to assess how likely you are to repay the loan. They’ll look at earnings, savings, employment status and credit history in order to assess your risk level.
Once you know which loan type and interest rate you qualify for, start shopping around to compare rates. Our Explore Interest Rates tool allows you to easily enter your information to view how different down payment amounts, loan types and home prices affect your interest rate.
A higher down payment can help reduce your loan-to-value ratio, which is the number lenders use to assess how much of a house you can afford to repay. That could result in lower interest rates since lenders believe you’re less likely to default on the loan.
Shortening your loan term can also help lower your mortgage rate. Lenders usually charge higher interest rates for longer-term loans, as they worry more about losing money if a borrower ends up defaulting.
If you’re a first-time buyer, government and community mortgage programs can provide access to lower interest rates and other advantages. They may provide cash grants for down payments as well as forgivable loans for closing costs.
By taking advantage of mortgage points offered by many lenders, you can reduce your interest rate and lower your payment. These one-time charges must be paid at closing and are considered “prepaid interest,” saving you thousands over the life of your loan.
It’s essential to do some comparison shopping before agreeing to purchase points, as their cost should be less than the interest rate you’ll eventually pay. A local credit union might have lower fees than traditional banks do; thus, shopping around can yield better deals overall.
Mortgage Points Vs. APR
Mortgage points are fees borrowers can pay upfront to reduce their interest rate when taking out a new home loan. This practice, known as “buying down the rate,” could save borrowers considerable amounts of money in the long run.
One point typically costs 1% of the loan amount and reduces the mortgage rate by 0.25 percent. While this reduction in rate may not be significant for all lenders, it can still amount to a considerable savings.
Lenders typically credit mortgage points to the buyer at closing, and it’s possible to purchase more than one point if desired. This option may be advantageous if a borrower wants to take advantage of mortgage points’ interest rate-reducing power but doesn’t want to incur additional closing costs.
These points may be deducted as home mortgage interest depending on your tax situation. To take advantage of this benefit, consult a tax advisor.
If you’re thinking about investing in mortgage points, use a mortgage calculator to run some simulations and evaluate the impact on your monthly payments and overall budget. Doing this can help determine if it makes financial sense for you.
When considering whether a lower interest rate will be enough to offset the additional fees associated with it. Furthermore, consider your break-even point–that is, how long or mortgage payments must pass before you start seeing any financial benefits from the reduced rate.
In addition to your break-even point, you should take into account the total amount of interest that will be charged throughout the life of your mortgage. If you anticipate paying a large amount in interest over an extended period, mortgage points might not be suitable for you.
Remember, however, that paying mortgage discount points on an adjustable-rate mortgage (ARM) only lowers your interest rate during its initial fixed rate period. Therefore, it may take several years before you see any significant savings from these discounts.
Comparison Shop Lenders
One of the best ways to save money on a home loan is to comparison shop. Fortunately, there are numerous websites and sources like Bankrate that can help you locate the ideal lender for your requirements.
With today’s ubiquitous mobile technology and growing selection of mortgage lenders, shopping around has never been simpler. The internet makes it simple to access the newest rates from multiple lenders simultaneously – saving you both time and stress!
Researching your options is essential, and it’s worth comparing loans from different lenders using criteria such as mortgage calculators and credit score. It may also be advantageous to search for a lender with the lowest interest rate and no or minimal fees.
The most crucial step in the process is creating a list of your mortgage goals, which will help you narrow down your lender choices. A list also helps you weed out lenders who won’t meet your individual requirements.
Comparing lenders is the best way to guarantee you get the best deal for your needs. Use a comparison website or ask your favorite mortgage broker what she thinks is the most suitable lender for your circumstances. However, be wary of settling for the first lender you speak to – taking time will help guarantee you don’t make this mistake.
Lock In An Interest Rate
Locking in an interest rate before closing is a great way to protect yourself against higher mortgage rates. Not only can it save you thousands of dollars over the life of your loan, but it also gives you peace of mind that you’re getting the best deal on your home purchase.
Mortgage rate locks are contracts between you and your lender that guarantee a particular interest rate and points for a specified period. Usually, this ranges from 30 to 60 days; however, if purchasing a new construction home the lock could extend for longer.
The length of time you’re locked in for a loan depends on several factors, including the lender, your location and loan type. Lenders who provide shorter terms usually charge lower fees than those offering longer ones.
Some lenders provide a “float down” option, which permits you to reduce your interest rate if market rates drop during your locked-in period. To take advantage of falling rates, it’s essential that you monitor the market and alert your lender if you wish to utilize this feature.
If your rate lock expires, you can request another at either the same or lower rate. However, be aware that there may be an additional fee for this second lock.
When searching for a home, it’s wise to compare offers from multiple lenders before signing any loan contracts. Doing this will enable you to get the best mortgage deal possible, including an attractive interest rate and reasonable fees.
Many lenders provide free mortgage rate locks. Others charge a nominal fee for this service, which can be offset by the savings you’ll experience throughout your loan term.
When locking in an interest rate, be sure the agreement is written down and covers the entirety of your loan process. Doing this gives a record in case something goes awry. Likewise, check whether there’s a loan closing date set for the time period you’ve locked in. Moreover, ensure you can cancel the loan if desired.