As many prospective homeowners know, the process of buying a home is not only an emotionally taxing time but also a huge financial commitment. If you are like most in the United States, you are going to need to finance the purchase of your new home with a mortgage loan. This is where the interest rate on the mortgage becomes a big deal, as it will determine how much money you will spend in interest over the course of the loan’s lifetime.
Lowering the interest rate by even a fraction of a percent is going to save you thousands of dollars in the long run. To put this in perspective, according to the US Census, the average loan in June 2018 was $ 363,300. With a 30-year fixed mortgage at 4.15%, you end up paying around $217,971.85 in interest, whereas, with a 4% loan you end up paying around $208,881.53 in interest. That’s a huge difference! So, with this said, let’s take a look at what you can do to get a better interest rate on your mortgage loan.
1. Improve Your Credit Score: your credit score is a major factor in the interest rate you receive when borrowing. The higher your credit score the less likely you are to default on the loan. This is advantageous for you because it means you will pay less to borrow the money required for the mortgage loan. An individual that has a credit score between 760-850 will pay thousands of dollars less in total interest than someone who has a mediocre score of 660-679. The easiest way to increase your credit score is to not spend more than 30% of your available credit at any given time and to always pay off the balance. Not carrying around debt is a major factor in whether you have an excellent credit score or not.
2. Hand Over Some Cash: although 20% down is the “gold standard” you can put more money down if you have it. It is highly recommended that you do as this will land you a lower interest rate and keep you from having to take on mortgage insurance.
3. Take a Shorter Loan Term: if you have the money to do so, choose a shorter term loan. Not only will you have a lower interest rate but you will have lower opening and closing costs. The only caveat to this is that the monthly payments will be higher.
4. Take a Look at How Long You Will Own Your Home: If you are looking to only stay in the house for a short period of time, then an adjustable rate mortgage may be best as this will have a lower initial fixed period. If you are planning on staying in the home for ten to twenty years, a fixed rate may be better as it does not change with the market, whereas, an adjustable interest rate can fluctuate up or down after the initial fixed period.
Other than this, ask your lender if they are willing to lock in your rate after you have signed the contract, as this may save you money in the long run if interest rates continue to rise.
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Senior Loan Officer
6900 North Dallas Parkway, Suite 610, Plano, TX 75024
M: 214.914.4900 | F:972.769.5772
NMLS # 1449477 | Company NMLS # 3274
Equal Housing Lender
President and Founder
Hogue Insurance Agency
5757 W Lovers Lane, #221, Dallas, Texas 75209
M: 214-499-6724| F:972-404-0303