How to Get the Lowest Mortgage Rate
As a homeowner, your mortgage payment is usually your largest out-of-pocket expense each month So it makes sense to try to figure out how to get the lowest possible rate, and therefore the lowest payment. But how can you make sure that you have a "good" rate? There are a few proven strategies to help you get the best deal.
Boost Your Credit Score
Your credit is the most important factor in determining your interest rate. The higher your credit score, the lower your rate, and the lower your payment. Here's how to get the best credit score:
Make your payments on time - You will want to have at least 12 to 24 months of perfect payment history before you apply for a new loan or a refinance.
Keep your credit card balances low - Try not to spend more than 30% of your credit cards' limits, and make sure that you pay off your cards in full each month.
If you see an error, alert the credit bureaus - There are many techniques to remove errors from your credit report. Check our free guide here.
Go for a "Credit Rescore" - While it can often take 30 to 60 days for your credit to reflect the correct balance on an account you recently paid down, a "Credit Rescore" often takes only 3-5 days. If you're applying for a loan, ask the loan officer to help you submit the paperwork and you may be able to boost your score quickly.
Consider a Shorter Loan Term
You can save a lot of money if you go with a shorter loan term. If you move from a 30 year to 15 year loan, you can get a lower interest rate and pay off your mortgage sooner. The downside is that your monthly payment will be higher, but you could potentially save tens of thousands in interest over the life of the loan. Additionally, you'll be able to pay off the home much faster.
Get Rid of PMI
If you bought your house with less than 20% down, you are probably paying mortgage insurance (PMI) which can really add up over the life of the loan.
The good news is there are ways you can get rid of PMI.
Keep making payments. The most basic way to remove PMI is to keep making payments on your current mortgage until your principal loan amount reaches 78% of your original balance. Once you get there, PMI disappears! The good news is that you won’t have to do anything else. Federal law requires lenders to remove mortgage insurance once you reach that threshold.
Request to have PMI removed. If your house has gone up in value, you can ask your lender to remove PMI because your equity is now over 20%. While you may have to pay to have your house reappraised ,it will most likely be worth the expense if you can remove PMI.
Shop Around!
Most importantly, you need to realize that not all lenders are the same. Interest rates, fees, and payments can vary amongst different lenders. Make sure to get two or three quotes from different lenders so that you can find the best deal.
The Bottom Line
Mortgage rates shouldn't be a mystery. When you understand how external and personal factors influence what you pay for your mortgage, you can start to shop around as an educated consumer.
Good luck and happy savings!
Posted in Homeowner Tips
