How to Lower Potential Mortgage Interest Rates
The lower your mortgage loan interest rate is, the less you’ll spend over the life of your loan. Not to mention, the less you need to pay in interest, the easier it will be to make extra payments on your loan which can help you pay off your loan early—saving you even more money in interest.
While there has been a lot of talk in the news lately about rising mortgage interest rates, fortunately there are some simple steps you can take to make sure you get the best deal possible and save money in the long run.
Read on for three tips to help lower your potential mortgage interest rate.
1. Improve Your Credit Score
The best step you can take to lower your potential mortgage interest rate is to improve your credit score. Lenders use your credit score as an indication of how likely it is that you’ll repay loans on time, so a higher score means more favorable rates and terms. It can take time to give your credit score a boost, but you can do this by paying down any outstanding debt and making sure all payments are made on time each month. The longer you practice good credit habits, the more you’ll see improvement. However, if you want to quickly boost your credit score, pay down any revolving forms of credit such as credit card debt. Doing so will help you quickly lower your credit utilization ratio and the lower that ratio is, the more your credit score will improve.
2. Put More Money Down
If you don’t have time to majorly improve your credit score before applying for a home loan, making a larger down payment can really help you out. Putting more money down up front is one of the most effective ways to reduce your potential mortgage interest rate since it reduces the amount of money borrowed overall and thus reduces the risk associated with lending you money. Even putting just 5% to 10% more down than required can result in a lower interest rate and you can enjoy significant savings over time due to lower monthly payments and less interest paid out over the life of the loan.
3. Shop Around
When it comes time to apply for home loans, don’t settle for the first offer you get from a lender; it pays to shop around and compare different lenders and their offers before committing to anything. That way, you can be sure that you’re getting the best deal possible for your situation. Make sure you take into account not just the interest rate but also any additional fees or closing costs associated with each loan offer as well.
The Takeaway
With a little planning, you can take the steps you need to lower your interest rate when you go to apply for a home loan. This extra work can be well worth it as the lower your interest rate is, the less you’ll spend over the life of your loan and the easier it will be to pay off your mortgage early.