Home ownership is something that most people aspire to at a least at some point in their lives, and most will have to obtain some sort of financing for this major purchase. Getting the best interest rate possible on a mortgage is very important and can save you from wasting more money than necessary on interest. If you’re looking to buy a new home consider some of the following ways you can get a better mortgage rate in order to save big money in the long run.
Before you being the home buying process with the hometown bank you’ve dealt with forever, look around at the mortgage rates offered by all the banks in your area and even some online-only mortgage lenders. It’s possible that the bank you’ve worked with forever, while familiar, is not the best choice for a long-term loan like your mortgage. Lots of times local banks are not able to secure the lowest rates because of their small size and their (likely) higher percentage of overhead costs.
Check Your Credit
Knowing what your credit score is and how it affects your mortgage interest rate is important before you get too far into the home buying process. Generally speaking, it’s possible to obtain a mortgage loan with a credit score as low as 620, but the best rates are given to those with scores in the mid-700s or better.
When we were obtaining financing for the purchase of our home, our lender explained that we should avoid having my credit score pulled during the months between our first discussion and the final closing of my mortgage loan. He explained that lots of people buying a house also try to obtain auto financing around the same time, which can make a big dent in your credit score. So to obtain the best credit score, and thus the best interest rate possible, you should avoid opening any new credit lines or financing any other purchases until after your home loan has closed.
Refinance for a Lower Rate
If you’ve already locked yourself into a mortgage with a high interest rate you’re stuck, right? Wrong! Refinancing may be an option to help you get a better interest rate on the remaining life of your mortgage. There are lots of reasons people refinance – to shorten the life of the loan, to lengthen the life of the loan (lowering the overall monthly payment), or to get a better interest rate. Unfortunately, refinancing can be a complicated process to qualify for so it’s best to check with your lender if you are considering this route to savings.
While none of these tips will likely save you a lot percentage-wise on your mortgage interest rate, when it comes down to it even shaving off a fraction of a percent can save you thousands of dollars of interest over the life of your mortgage. Saving money on interest charges can be compounded if you put those savings toward extra principle payments to shorten your loan’s amortization schedule, saving you even more interest. As you can see, following up on these tips is worth it and can result in some serious savings!
Photo courtesy of: Jim Larrison