How to Get a Low Mortgage Rate
Getting a low mortgage rate should be a priority for homeowners. Low mortgage rates refer to the interest rate, or the premium you pay to borrow the money. Mortgage interest rates are determined by a number of factors, including the prevailing national average cost to borrow money, your credit, and the type of loan you are attempting to qualify for. In order to get a low mortgage rates, you need to be aware of all of these factors.
National Average Mortgage Rates
In order to qualify for low mortgage rates, you want to buy at a time when the national average interest rate is low. To determine whether mortgage rates are likely to go up or down, compare them to bond rates. Bond rates are the rates that savings bonds issued by the U.S. treasury will pay. While mortgages don’t rise or fall in exact correlation, this can give you a good indication of where mortgage rates will go.
Your Credit
Good credit is essential to getting a low mortgage rate. If you have a record of late payments, a bankruptcy or other judgments against you, it can be wise to wait until those drop off your record, if possible. Negatives stay on your credit report for ten years, so it may not always be possible to wait it out. However, you can also take steps to improve your credit or, if you have no negatives, to ensure your credit score remains high.
Avoid opening any new credit cards or taking too many new loans within two years of applying for a low mortgage rate. When you open new accounts, an inquiry is displayed on your credit report. Too many inquiries can lower your credit score. New cards also lower your average age of credit, which is worth 15 percent of your FICO score.
Finally, pay off debt aggressively. If you pay down your debts, you will improve your debt to credit ratio or the amount of debt you have versus the amount of credit available to you. Maxing out your credit cards or having high balances sends up red flags to lenders and suggests you may be living beyond your means. This lowers your score.
Type of Loan
The type of loan also affects the mortgage rate you will get. A fifteen year fixed rate mortgage can often allow you to lock in the lowest mortgage rate possible for the longest period of time. However, a fifteen year mortgage rate has higher monthly payments since you are paying more towards your principle each month in order to pay off the loan.
Certain other types of mortgages, such as an adjustable rate or balloon mortgage, can offer you a low mortgage rate for a set period of time. However, this period of time usually lasts from six months to five years, and your mortgage will not be paid off during this time period. Once the low promotional rate ends, your mortgage interest rate will usually rise, and sometimes will rise sharply. Therefore, be prepared to refinance to get a low mortgage rate, if you opt for this type of financing.
Securing a Low Mortgage Rate
Once you have considered all the other factors, the best way to secure a low mortgage rate is to shop around for lenders. Certain loans, such as those backed by the FHA (the Federal Housing Administration) or the VA (for veterans) will often offer a low mortgage rate. Finally, you should compare rates from both online and low lenders in order to ensure you get a low mortgage rate.