When you decide that you need a mortgage, the obvious next step is to start shopping around to compare the offers available to you. Cutting just a tenth of a percent off the amount of interest you pay over the course of a loan makes a huge difference when you talking about a mortgage.
Since a mortgage is a long-term debt that will take you many years to repay, it makes sense to invest a little time in learning how to secure the most favorable interest rates before you take a loan. The tips presented here can help.
Get The Shortest Term You Can Handle
With all other factors being equal, short-term mortgages cost less than long-term ones. A 15-year mortgage, for instance, will have an interest rate about 0.75 percent lower than a 30-year loan. Although your payments will be larger with a short term, you’ll have the full debt paid off faster.
Going for a shorter mortgage is also a good idea if you don’t want to risk changes in your interest rate or you’re comfortable refinancing to take advantage of rate drops in the future. Short-term mortgages generally expose you to less uncertainty all around.
Consider Hybrid ARM Loans
Hybrid ARMs are new credit products that may help you make the most of low interest rates. Hybrid loans have low introductory rates for a fixed period (generally one to five years) at the start of the term. The rate will jump up afterward. Lenders like Hybrid loans because they limit the amount of risk they have to take on to offer attractive interest rates.
Of course, these loans carry the danger of exposing you to high rates that you can’t handle later on in the term of the loan. These loans are most useful if you plan to resell your home during the introductory low-interest period or are confident in your ability to refinance in the future.
Keep Your Credit Score Healthy
Borrowers that come to lenders with great credit histories are, obviously, the ones who get the most favorable interest rates. Limit your borrowing to what is absolutely necessary, make prompt payments (above the minimums if possible), and maintain a healthy debt-to-income ratio.
Although there are mortgages available for borrowers all over the credit spectrum, loans are going to cost more for people who have average or bad credit. You might even want to delay buying a home in order to bolster your credit score before you take out a mortgage. This sort of patience can improve your long-term financial position considerably.
Make A Larger Down Payment
Home loans that don’t call for down payments are becoming very rare. It’s a good idea to stow away as much money as possible prior to a home purchase so that you can get started with some equity right off the bat. There are many different benefits to making a large down payment.
If you can pay 20 percent of the total cost of your home at signing, you won’t have to pay for private mortgage insurance (PMI). You’ll also receive equity in your new home, increasing your security greatly. Larger down payments also encourage lenders to offer lower interest rates. Even if you can’t change your rate, you will reduce the size of the principle by putting more money down.
Always Comparison Shop
Different lenders cater to different sorts of borrowers. Some lenders offer unique financial products to qualified borrowers that their competitors simply can’t match. Shop for your mortgage with the same patience and attention to detail that you put into shopping for your home.
Don’t just inquire with your local banks and credit unions. Look further afield to check out other lenders as well. Use resources like online comparison services and independent brokers to get a better idea of all the options that are available to you.