It is true that the mortgage interest rates have been at a historic low for the past year or so, but now they are on the rise again. This is yet another reason why home buyers should use all possible tools for bringing the interest down. Take a closer look at the methods for lowering the interest which have been tested and proven to work and learn how to use them effectively.
Improve Your Credit Score
Individuals who have credit score of 740 or higher can secure mortgage interest rate which is 1 percentage point lower than for those with score lower than 640. If you manage to boost your score to 760, you can get a rate which is 1.5% lower. Generally, the higher it is the greater your long term savings will be. It is best if you use a complete strategy for boosting your credit score. You should implement it as soon as possible.
Buy a Traditional Single-Family Home
Lenders consider individuals who buy such properties to be at lower risk of default. Hence, they are willing to offer a lower interest in comparison to what they would offer to a person who plans to buy a condominium. In fact, the statistical data shows that on average the rate on loans for the purchase of condos is around 0.25% higher than the one on loans for single-family homes.
Make a Larger Down Payment
The larger your down payment is the lower your mortgage interest rate will be. This is due to the fact that borrowers are less likely to default on loans with smaller principal. The lender will take into account the loan-to-value ratio in order to determine the interest rate. Usually, you can get a considerable reduction in the interest rate if this ratio is 75% or lower. If you do not have sufficient savings for this strategy, you can consider going for a smaller and/or less expensive property in order to reach this ratio.
You will certainly identify the lowest mortgage interest available in the market if you compare a large number of programs. There are two major requirements for effective comparison shopping when it comes to home loans. Firstly, you need to get all quotes on the same date to prevent market fluctuations from affecting the comparison. Secondly, you must compare loans of the same type.
Close the Deal Quickly
You would want to lock the interest for a period of time which is as short as possible. Otherwise, the lender will add more fractions of percentage point to the rate. The best strategy is to lock the rate once you have found a house to purchase. It will save you time and money.
This strategy is recommended to individuals who plan to take out a loan with a longer term such as 30 years. That way, with preliminary payment, you will generate considerable savings on the interest. Just make sure that you will do precise calculations before using this method.
It is best if you use all of these strategies for lowering the mortgage interest rate together. This will produce the best possible results.
By Elizabeth Babcock