How to Get The Best Mortgage Rate

home mortgage rates

Sneakers on an arrow pointing to the best mortgage rates

Getting the best mortgage rate will give you lower monthly payments and you’ll pay less on the life of your loan.

There are few things in life as serious as mortgages. It can get easily overwhelming going through the process of finding and getting the best mortgage rate. The more you know about mortgage rates the better off you will be. Finding a mortgage with great terms can be even harder than the search for the home you want to buy. Since mortgages generally stay with us for 30 years or so, it’s definitely something you want to put time and effort into it.

Whether you’ve never had a mortgage before or are looking for one that can offer you more than your current one, there are some things to look for that can guarantee you the best mortgage deals. You’ll first need to look at the types of mortgage lenders and how each of them differs. Then look at the types of mortgages that they offer, with the more research you do the better you’ll understand what you will be looking at in your future.

Illustration Of Mortgage Types

With this helpful guide, you’ll know exactly the questions to ask of potential lenders and will be better equipped to navigate your way through all of the options to find yourself the best mortgage rates on offer. The right mortgage has the potential to save you thousands of dollars over the life of your loan, so you need to be sure you understand all of the possibilities.

What Is Considered A Good Mortgage Rate?

With so much talk everywhere about mortgages and interest rates, you can be forgiven for feeling a little confused about what it all means. Many people wonder what is a good mortgage rate and are unsure if the ones they’ve found are actually a good deal or not.

The world of interest rates can shift depending on economic and political changes. Currently, an interest rate of about 4 percent is considered to be the best. In order to get yourself a loan with this low rate, though, you’ll need to meet the criteria that most lenders work with including a good credit score and a sizable down payment for your loan.

Getting the best mortgage interest rates isn’t the only thing you need to consider, though, as there are other terms and factors in a mortgage that can impact it. You’ll also need to look at the length of the loan, whether it’s a fixed or variable mortgage, and what other things your lender might be able to offer.

The Different Types Of Mortgage Lenders

Traditionally, mortgages used to be offered by banks alone and many Americans put their faith in this system to give them the best deal. However, the landscape of lending is changing in this country and it seems that more people are looking for alternative methods. In 2011, 50 percent of all new mortgage money was loaned by Bank of America, Wells Fargo, and JP Morgan Chase. By 2016 that number had dropped to just 21 percent.

Bankers

Many people trust banks for their mortgages and because there are now so many to choose. Banks have plenty of options for finding the best mortgages interest rates. Banks are usually quite ahead of the times in terms of market trends and because there are so many they’re able to offer competitive rates for their borrowers.

Mortgage lender giving a couple a new mortgage loan

However, the downside is that there might also be high fees associated with bigger banks. In additon, many people can feel as though they’re just another number to the larger banks.

Brokers

A mortgage broker is someone who works for you in a sense to find out how to get the best mortgage rate. These brokers might often work free of charge and they will look at your situation and then recommend a loan based on their findings, even helping you to do the entire application. Brokers can be extremely helpful in the entire process but they might also have limited access to lenders which means your options might be limited as well.


Credit Unions

Many people now used credit unions for all of their banking needs including savings accounts and mortgages, and these not for profit organizations are run to service those with a bond or association. A credit union will usually be able to offer lower interest rates than larger banks and they also have a keen focus on customer service. However, because they’re not as popular as banking institutions it can be hard to find a branch or qualify for one of their loans.

What To Look For When Comparing Mortgage Vendors

Finding the best mortgage rates is something that should be done with care, and the process should be treated just like you would making any other serious purchase in life. There are a few things you should look for when comparing mortgage vendors so that you fully understand what’s on offer and will be in the best position to get a good rate.

Rate

The first thing that people want to know is what mortgage rate is on offer by the lenders, so don’t be afraid to ask what is the best mortgage rate and how can you get it. Usually, a lender will offer the best mortgage rates for excellent credit so if you’re certain about your credit score being high then you might want to use this to your advantage.

Set Up Fees

Almost every mortgage will come with set up fees and some may even have annual fees for the life of the loan. A savvy mortgage shopper may be able to have these fees discounted or removed altogether which can make a huge impact on the entire term of your mortgage.

Mortgage fees in wood blocks

Can you Make Overpayments?

Although you’ll have a set amount that you’re required to pay off your mortgage, there may be times when you have extra money and want to take off even more of your debt. Find a loan that allows for overpayments so you have the option in the future to increase your repayments and reduce the overall interest that you pay on your loan.

Fixed Or variable

Speak to each specific lender about their fixed and variable rate loans to see which one might suit you best. Each lender may have their own introductory rate that you’ll access at the start of your loan, and this is where the competitiveness of the banks can pay off in your favor.

Minimum/Maximum Loan

Depending on the amount you want to borrow, you’ll need to make sure you meet the requirements for a minimum or maximum loan amount. Banks won’t usually lend for anything too small but there are also stipulations in place that prevent you from borrowing more than you’re capable of, otherwise, you’ll be more likely to miss repayments.

The Tricks For Getting A Good Mortgage Rate

The financial industry is a competitive one so you can easily shop around for months until you find the best mortgage rate. Here are a few tips that can help you find the best deal and potentially save yourself thousands of dollars over the years.

Improve Your Credit Score

Before you take any steps to look for homes or apply for a mortgage, you should understand the ins and outs of your credit history. There are plenty of ways to acquire a free copy of your report and this should be done before you start the process. Generally, lenders consider credit scores of 760 and over those that will qualify for the lowest interest rates.

Good Credit Score

Have A Solid Employment History

Not only is it important to show that you currently have a job, but you’ll also need to prove that you’ve been there for a long enough time to prove responsibility and stability. Lenders will want to know your employment history and will often verify this. Those who are self-employed may find it harder to secure a loan. It will more often than not be dealt a higher interest rate because of it.

Down Payments Count

All lenders operate differently and there may be times when you qualify for a reduced down payment, as a rule, though most lenders will want a 20 percent down payment on a loan. If you’re unable to come up with 20 percent, there may be some loans with as low as a 3 percent down payment. However, these are classed as more high risk and will come with higher interest rates.

Know Your Debt To Income Ratio

All credit scores take into account your debt to income ratio and this number is what lenders will look at when determining your interest rate. A good debt to income ration should be no more than 36 percent in order to qualify for a mortgage. This means the entire accumulated debt repayments you have, including your new mortgage, should be less than 36 percent of your entire earnings.

Have Cash Reserves

When you enter into a mortgage, a lender needs to see that you have enough money to be able to cover costs in the first 60 days. Showing that you have cash reserves that will cover mortgage payments and other costs will indicate to lenders that you’re serious and responsible with money. The standard cash reserve amount is two months however those entering into higher-risk loans may need more than this.

Cash reserves of $100 bills

The Importance Of Finding The Best Mortgage Rate

While it’s obvious that a lower mortgage rate will save you money in the long run, it’s actually more important than just looking at the figure. The average American pays over $1,000 a month on their mortgage and when you consider that these can last for 30 years you’ll want to be sure you have the absolute best deal.

Finding the best mortgage rate is important but so too is the lender you go with. Whether you choose a mortgage broker, bank or credit union, there’s bound to be one that better suits your needs as a customer. See what else they have to offer and understand fully the conditions of your loan. Otherwise, you could be charged for things that you had no idea about entering into the loan.

Once you’ve done your homework and shopped around with different lenders you’ll feel more confident to ask for the best deal. Too many people take the first deal offered to them without using their bargaining power that they have as a potential customer, so be sure to barter with the lenders.

Conclusion

As one of the biggest financial decisions you’ll ever make in your life, choosing the best mortgage should not be taken lightly carelessly. Be sure to do your homework and compare all lenders and the types of loans they offer. You’re guaranteed to find something specific that suits your needs.

When meeting with potential lenders, don’t be afraid to ask plenty of questions and find out if there’s anything you can do to make yourself a more attractive candidate for a lower interest rate. Banks are usually happy to match rates or other terms if it means they can get themselves a new loan customer, so don’t be afraid to do your comparisons and let the lender know you want a better deal.

Businessman Shaking Hands

To put yourself in the best position to get mortgage rates you need to have a good credit score, as without this you’ll find the rates can be quite high. The better your score the better the mortgage deal you’ll get, so if you need to spend six months to a year working on building it then it’s worth the wait and effort.

Most mortgages span about 30 years and the slightest difference in interest rate can have a huge impact on your repayments over the years. Finding the best mortgage rate is just as important as finding your ideal home, so be sure to give it the time and energy that this decision deserves.

Resources:

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