Owning a home is one of the most prestigious things that can happen to you in life. Imagine walking into your own garden or a newly decorated patio. Imagine living in a house with your sense of style everywhere!
The only thing that could stand between you and your newly purchased home is a high mortgage rate. Buying a house is an expensive undertaking. This is the reason most homebuyers opt for a mortgage.
Well, some may argue that finding the right property is the hardest part of the equation. However, this is only half the battle.
The other half is choosing a mortgage rate that works for you for as long as you’re supposed to pay it. So how do you choose the best mortgage rates? Let’s count the shapes:
Get a fixed or adjustable rate mortgage, depending on which is right for you
Mortgages come with two rates; fixed or adjustable. With a fixed-rate mortgage, you’ll be subject to a constant interest rate that you’ll have to pay off over the life of the loan.
The good thing about this is that you know what you are expected to pay, and for how long you will pay, before you collect on the mortgage.
A fixed-rate mortgage works when part of the payment that goes toward the principal amount of the loan remains constant, while other factors, such as property tax and insurance, can fluctuate over the life of the loan.
On the other hand, an adjustable rate mortgage changes from time to time. It usually starts with an introductory period where the interest rate will remain constant for a certain period of time and then change periodically.
Watch your discount points
Did you know that a discount point is 1% of your loan amount, which will eventually be reduced by 0.25%? For example, if you take out a loan at 3.5% interest, you may be able to pay a fee of $1,000 to bring the rate down to 2.25%.
When you redeem your discount points, you’ll spend thousands of dollars up front to save a few dollars each month. This strategy works better for long-term mortgages compared to home loans that can be paid off in a shorter period of time.
Understanding Closing Costs
This is the fee your lender will charge. It is approximately 3% of your home purchase and is due when you close.
The fee includes the lender’s underwriting, processing fees, and title insurance, among other fees. This fee does not affect the mortgage rate, unless paid with discount points.
Ideally, you should look for lower closing costs, as this is indicative of a favorable mortgage rate. If you’re not sure where to look, a loan estimate form will offer you a variety of lender options and their estimated closing costs.
Consider first-time homebuyer programs
Before deciding on a specific mortgage rate, you should find out if there are any programs that make buying your home a less expensive experience. Different states offer help to both new and repeat buyers.
This could be in the form of tax breaks, favorable interest rates, down payment assistance, and much more. A little research will also go a long way when it comes to these special programs.
Compare, compare, compare!
You can’t trust information from just one lender. The more you shop around, the more likely you are to find a rate that works for you. To do this, apply for a mortgage with different lenders, as each one will come back with their best rates, making it easy for you to choose.
This in itself could take a lot of time and dedication, so you should start your research when you have enough time. Also, don’t forget your Loan Estimate Form, as it will help you compare different mortgage offers.
Depending on market or national rates, mortgage rates may fluctuate from time to time. This is why it is best to have a good understanding of the loan process so that you can be on the path to borrower success.
The first step for this? Improve your credit score and lenders will come to you with a lower interest rate. With a low credit score, you’ll be inviting a higher rate. By following all of the above rules, you will enjoy a great mortgage interest rate on your mortgage.
Interesting Related Article: “How to Choose the Right Mortgage”