A good credit score can help you save money on home loans!

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By: Kedy
on 27th Oct,2013

A good credit score can help you save money on home loans because the lender sees you as a lower risk when they consider lending you money.
A good credit score can help you save money on home loans!

According to the Small Business Administration (SBA), your credit score tells a lender how well you handle your money. A good credit score can help you save money on home loans because the lender sees you as a lower risk when they consider lending you money. Still, millions of people struggle with bad credit scores and subsequently face more expensive home loans. Poor credit scores indicate an increased risk to your lender when they agree to loan you money.

Apart from locking you out of the borrowing bracket with astronomical interest rates on home loans; a poor credit score can subsequently lock you out of home ownership. Luckily, here are some saving money tips you can apply to keep your credit score clean and save money through lower interest rates and fees on your home loan over the long term.

Pay A Fair Down Payment

The larger the loan the longer it takes to pay. Large loans also generally cost more than smaller, shorter term loans. Taking out huge loans on your home also increase the chances of defaulting on them if your financial fortunes change. From a financial point of view, this can be extremely harmful for your credit score.

The key to managing your credit score and saving money on your home loan is placing a fair down payment on your home to lessen the loan burden and the higher interest rates. A bigger down payment of, let’s say 20% rather than 10%, can cut your home loan burden and lower your interest rates, saving you money in the process. Your requirement to have a bigger loan with more costly interest rates will be solved with a fairly large down payment on a home.

Use A Good Credit Score To Shop For A Home Loan

The best way to use your credit score to save money on a home loan is to find a money saving home loan. There are numerous loan providers who offer low interest rates and minimal fees for people with a proven credit history. Perform a credit check and get your credit score and report. After ascertaining the health of your credit score for a home loan, shop around for a favorable loan provider with the lowest interest rate. Shopping around for a cheap home loan will not only help you save money, but it will also give you a lower loan burden over the term of the loan. This will lower your repayment demands; reducing your chances of defaulting thus maintaining your credit score.

Keep Up With Your Repayment

Loan interest rates may change depending on inflation, economic growth, and general market conditions. Unluckily, one factor most home loan borrowers fail to note is the cost incurred in the case of missing home loan repayments. Defaulting on your home loan will hurt you in two ways. First, it will increase your debt burden in the short term. If you continue skipping payments it may cost you your credit score, leaving you exposed to the predicament of people with poor credit.

Your bank is also likely to increase its interest rate if you persistently miss payments and damage your credit score because of your other financial obligations. Ensure that you make your home loan repayments on time every time to preserve your credit score. This is the only way to continue saving with your home loan.

Keep Refinancing Options Open

The home loan you’re considering might last a long time. Many are 30 year terms while some are only 15. However your current home loan deal might not be as good 5 or 10 years down the line. To save money on your payments and loan, keep your eyes open for refinancing options along the way. In the long term, refinancing may help you save money.

Overall, a good credit score is critical for one’s ability to get affordable credit to buy a home. You can ensure a healthy credit score by consistently performing a check on your credit scores and reports. Shopping for lower cost loans in the beginning, keeping up with repayment obligations during the loan and searching for affordable, money saving refinancing options along the way can keep you saving throughout the life of your mortgage. With more than half of the population not aware that a good credit score can help them save money on home loans, apply the techniques outlined above to start enjoying these savings.

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