The interest rate on a mortgage will have a major impact on the amount of money you pay each month and the total you pay over the life of your home loan. Even a difference of a fraction of a percentage point can have a significant impact over decades, so you should do what you can to secure a low interest rate.
Get on Firm Financial Footing
Lenders use a borrower’s credit score to assess the riskiness of a potential loan. The higher your credit score, the easier it will be for you to secure a mortgage with a low interest rate. You can improve your credit score by paying your bills on time and paying down credit card debt. Check your credit report for errors and have any you find corrected.
A lender prefers borrowers who have a record of steady employment because they’re likely to be able to pay their mortgages on time. If you recently started a job, consider staying there for at least two years before applying for a mortgage.
A significant down payment can help you get a low interest rate and avoid needing to pay for private mortgage insurance. Before you apply for a mortgage, save up as much money as you can for a down payment.
Choose the Right Mortgage and Lender
An adjustable-rate mortgage (ARM) has a low interest rate for a period of several years before the rate readjusts. If you plan to move before the rate would change, an ARM could help you secure a lower rate than you could with a fixed-rate mortgage.
If you have a high and steady income and want to pay off your mortgage as quickly as possible, a 15-year, fixed-rate mortgage is a good idea. Your monthly payments would be higher than they would with a 30-year mortgage, but you would have a lower interest rate. That means that more of each payment would go toward principal, you would pay off the loan faster, and you would pay significantly less in interest over the repayment period.
Shop around and compare interest rates from a variety of lenders, including banks, credit unions and online lenders. Different institutions may offer dramatically different terms.
It may take several weeks from the time you sign a purchase agreement until you close on your home. In the meantime, interest rates could change. If you were approved for a low rate, ask your lender to lock it in so you don’t get stuck with a higher rate at the time of closing.
Get the Best Rate You Can
The interest rate on your mortgage can mean the difference between comfortably affording your monthly payments and struggling to make ends meet. A low rate could help you save tens of thousands of dollars over the term of your mortgage. Before you apply for a mortgage, strengthen your financial position so you can qualify for a low interest rate.
This article is intended for informational purposes only and should not be construed as professional or legal advice.