Buying a home is one of the most significant purchases that anyone can make. And, without proper knowledge about the available financing options, it can easily cost more than it should.
The cost of owning your first home would usually depend on the mortgage rate that you get. In other words, if you choose the right rate attached to your mortgage, you can control the cost of your homeownership.
Wondering how you could get a lower mortgage rate?
Well, here are the top 7 practical ways to do so.
Read More: What Is a Mortgage? Meaning, the Mortgage Process
1. Maintaining A Healthy Credit Score
The foundation of setting up a low rate on any type of loan is a good credit score. Whether you’re taking out a personal loan or a mortgage, your credit score will usually decide the amount you pay.
Mortgage lenders look for borrowers who can easily repay their money. In other words, they try to figure out the creditworthiness of a borrower. And that is exactly what a good credit score indicates.
Maintaining a healthy credit history or score isn’t as difficult as it may sound. Perhaps, you can practice a few things in your daily financial behavior and you’re likely to maintain a good score.
For example, if you have a loan on you, make sure you make the payments on time. Likewise, you should try not to skip or delay payments for bills and other utilities. These minor expenses may seem not so important, but believe us, they can have a huge impact on your credit score.
2. Consistent Work History
Mortgage lenders don’t only consider the credit score or history of the borrower. Apart from a good credit score, they also want to know how long and consistently you’ve been employed.
If you’ve been working with the same employer for years and have grown consistently, you’re more likely to attract mortgage lenders with good offers.
On the contrary, if you’ve been switching between jobs frequently, it shows that your income isn’t reliable. And you may or may not be able to pay back the loan in the future.
So, to avail a good mortgage rate, your employment status and history also matters.
3. Compare Before You Buy
Although it is pretty much common sense, yet it is quite often ignored by many mortgage seekers.
Consider this; when you buy a car, you compare several models from various manufacturers. And, of course, you compare the prices with your budget as well.
In the end, you’ll buy the one that fits your budget and also offers you the best features and utilitarian value.
The same goes true with your loans. Not all mortgage lenders will make the same offer. Some may charge you a higher rate while others may charge you a lower rate. Comparing before you buy can land you with a lower mortgage rate for sure.
4. Seek Refinance Options
Getting a lower rate for your first mortgage loan is easier. If you have a good credit score, a consistent work history and you shop smartly, you can easily get a good deal.
However, for the homeowners, who have been paying off their mortgage for some years now, seeking a lower rate on their existing loan might sound absurd at first. But believe us, it is possible.
Financial experts suggest seeking out another mortgage to get a lower rate. The practice is called refinancing and can be used for other types of debts too. However, it is suggested to consult with an expert on the subject before seeking this option.
Apart from this, refinancing can be a great opportunity for good loan performers to get rid of their debts at lower expenses. Yes, your credit history still plays an important role. And there are other factors too. That is why it is better to consult with an expert on the subject.
5. Put Down More Money
Consider how much money can you put down on your home purchase. Ideally, a higher value property would mean more loan amount. And it would also mean a higher risk for the lender.
As a result, the mortgage lender may charge a higher rate of interest.
However, there’s a way out. The money you pay as a down payment for your home would be reduced from the property’s total value in the sale. And this should mean that you’d need to take out less money on your mortgage.
You could save thousands of dollars in interest if you put down more money against your mortgage.
6. Ask For A Shorter Term
Although the mortgage is no short-term loan, still the tenure you choose to repay your loan would decide the interest you pay.
In other words, the longer you take to repay your loan the higher the interest will be.
So, what you can do is, ask your lender to make a shorter term for your mortgage loan. Instead of going for 20 or maybe 30 years in tenure, choose 10-15 years.
A shorter term would surely bring down your interest rate as well as the interest you pay by manifolds.
7. Consider Adjustable Rate
It is noteworthy that mortgage lenders usually offer two types of interest plans. One is a fixed-rate interest plan and the other one is an adjustable-rate plan.
Typically, adjustable-rate plans are better for homebuyers who can make their payments quickly. The reason being, the interest rate would keep on changing (usually decreases) on every payment. Or some lenders also like to charge a lower rate for the first few years, and then increase it.
In any case, an adjustable-rate can allow you to conveniently pay off your debt and enjoy a lower interest.
Read More: Difference Between a Mortgage Banker and a Mortgage Broker?
The Takeaway
Seeking a lower mortgage rate is not only a wish but for many homebuyers, it is a necessity. And, therefore, it is necessary to learn how a lower rate can be secured for your mortgage.
A good credit score, a consistent work history, the rate plan, and the lender all play a crucial role in deciding the interest that you pay.
Besides, even the existing mortgage users can enjoy a lower interest with some smart moves. But, it is better to work with someone who has the experience and expertise in the subject.
