How can i reduce my mortgage interest rate?

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By: Amy
on 20th Nov,2015

Subsequently, you might have noticed that not all banks offer the same rate.
How can i reduce my mortgage interest rate?


Mortgage rates have been in the news quite often during recent years, as they haven't been this low for quite some time. Thanks, in part, to the housing debacle a few years prior, there is a glut of homes on the market and not as many families to fill them, so both housing prices and mortgage rates have fallen in an attempt to lure consumers into becoming proud homeowners. It is still a buyer's market, but mortgage rates are slowly but steadily climbing again.


If you have been considering purchasing a new home and acquiring a mortgage you've, more than likely, been paying attention to the current rates. Subsequently, you might have noticed that not all banks offer the same rate. You might even have already applied for a mortgage, and may be asking yourself why you have a high interest mortgage when others have fared better. There are plenty of reasons why you might currently have a high interest mortgage, but that doesn't mean you can't reduce your mortgage interest rate in the future.

Factors affecting your mortgage interest rate


There are, essentially, two factors that determine what your mortgage interest rate is going to be; the bank you do business with, and your credit score. Focusing first on the bank or mortgage lender, they utilize additional factors aside from your credit score to reach the rate they offer—how much of a down payment you may be providing, and the current economic environment that sets the standard for mortgage rates across the country. Different lenders will perform their calculations differently, also taking into account your credit score, which is why you will sometimes receive a high interest mortgage even though the current market rate is low.

How to Reduce Your Mortgage Interest Rate


There are a few things you can do to negotiate a high interest mortgage into a rate that may be more manageable and preferred. Firstly, you can offer a higher down payment. The more you pay initially on your down payment, the less you will have to pay on your monthly premiums. Typically, most lenders require a down payment of 20%, which also enables you to avoid having to pay mortgage insurance on top of your mortgage, which can raise your monthly payment quite significantly. Putting down more than 20% benefits you over the course of your loan, because the interest charged will be on a lesser amount.


The second thing you can do to reduce a mortgage interest rate is improve your credit score. Your credit score directly impacts the interest rate you will receive, and obviously the better the credit score, the better the interest rate. A low credit score or a credit report that shows a risky financial history can result in you being denied a mortgage altogether.

Improving Your Credit Score


Before seeking a mortgage, it may be beneficial for you to do what you can to improve your credit score. Even the difference of a few points can significantly reduce your mortgage interest rate and potentially save you thousands. To see what actions may be taken, it would be useful to order your credit scores so that you can more accurately determine why your credit score is what it is, and how it can be improved. You can also order your 3 bureau credit reports and examine them for any mistakes or items that can be corrected or removed, subsequently improving your credit score.

Refinancing


If you are already paying a high interest mortgage but wish to reduce your mortgage interest rate, you can do so by refinancing to take advantage of today's lower interest rates and the benefits of an improved credit score. If you are currently paying at a rate of 4% or higher, it may be worth considering refinancing. Again, before doing so, order your 3 bureau credit reports and order your credit scores so that you can see if your credit score can be improved even further—this will enable you to refinance at a much better interest rate.


You might also consider refinancing if you have an adjustable rate mortgage that has begun to increase. A fixed mortgage at a lower rate might save you more money over the course of the loan.


Overall, it is always good to shop around at different banks and mortgage lenders to see what options are available to you and to see where you might acquire the lowest interest rate. Because not every bank or financial institution uses the same criteria to determine their interest rate, or even offers the same type of mortgages, you might be surprised to see how the mortgage rates can vary widely from lender to lender.

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