If you’re purchasing a home, chances are, you’ll have to take out a mortgage loan. And, like with other types of loans, mortgages come with an interest rate. Those rates vary among many different factors, including:
Depending on if it’s a buyer’s or seller’s market, your interest rate can be affected. In a slow economy with few buyers, mortgage rates tend to be lower, as lenders will reduce them to attract more buyers.
The higher your credit score, the lower your interest rate tends to be, and vice versa when it comes to poor credit. Note: Experts recommend getting your score from a lender.
“There are so many different credit score models that the score you see as a consumer may not be the same as the one a mortgage lender sees, so it’s important to get your score from a lender,” says Mark Richards, a senior mortgage loan officer for TD Bank in Washington, D.C.
Type of Mortgage
There are two main types: Fixed-rate mortgages (FRM) and adjustable-rate mortgages (ARM). Pursuing an FRM means your interest rate will stay the same until either your home is paid off or you refinance. With an ARM, interest rates can change according to the terms of the ARM.
Type of Property Purchased
Interest rates vary among single-family homes, condos, etc.
If you follow a few general rules, you can get the best interest rate on your mortgage. Here’s how:
Know your closing date
The amount of time before closing on a home can impact your interest rate.
“Make sure you tell the lender when you expect the closing to be, because you want to lock in the interest rate for the right length of time,” says Richards. “Many lenders charge one-eighth percent more if you must lock-in the loan for 60 days. If you need a 90-day loan lock, your interest rate could be as much as one-third percent higher.”
Figure out all the fees
If there weren’t fees associated with a loan, you could just pick the best advertised interest rate and call it a day. However, loan-associated fees can add up, so it’s important to discuss with your lender how much you’ll need to shell out for this expense.
“Some lenders blend all their fees into a loan preparation fee, while others separate them out, so be sure to ask for the total amount it will cost to close the loan,” says Brian Martucci, a mortgage lender with GetLoans.com in Washington, D.C. Keep in mind that, usually, a mortgage that has higher fees means a lower interest rate.
Discuss “points” with your lender
There are points associated with each loan, and sometimes, this can be your biggest expenditure.
“You need to make sure you discuss with each lender how the loan will be structured in terms of whether you are paying points or not,” recommends Craig March, a personal mortgage consultant. Each point is worth one percent of your loan rate. So if you’re buying a home for the long haul — meaning you tend to stay there for more than 10 years or “forever” — you may be better off paying points to keep your interest rate low. However, if you’re looking to sell in a few short years, paying a lot up front to pay points may not be the best deal. Your lender will be able to calculate everything out for you to establish which the better deal is.
Keep time on your side
Interest rates can change within only a few hours, so, if possible, call your lender on the same day.
“If possible, call within the same timeframe, because a bond rally could mean that mortgage rates have dropped dramatically from the morning to the afternoon,” Martucci says.
Let us know if we can be of any assistance with your mortgage search.