If you are planning on applying for a home loan, or are planning on refinancing in the future, then you want to make sure that you get the lowest mortgage rate possible. You aren’t going to get anything extra if you unnecessarily pay extra money every month. The lower the interest rate is on your loan, the lower your monthly payment is going to be. This will also help you save money over the life of the loan. If you want to secure a low interest rate on your mortgage loan, there are a few tips that you should keep in mind.
Understanding the Types of Interest Rates
When you are looking at the interest rate on your home loan, you need to understand exactly what this means. There are two possible types of interest rates on your home loan. They include:
- A Fixed-Rate Loan: If you have a fixed rate home loan, this means that your interest rate is going to be the same for the life of the loan. If you have a 30-year mortgage, then your interest rate is going to be the same for all 30 years. Your interest rate may change if you get a new home loan or refinance your current loan.
- An Adjustable-Rate Loan: If you have an adjustable-rate loan, the interest rate may rise or fall within two set boundaries. They almost always start with a lower interest rate. Then, if the market changes, the lender may decide to raise your interest rate. This means that you will have to pay more every month. There is a limit to how much the rate can go up; however, even a rise of a quarter of a percentage point can make a significant difference in your monthly payment.
Make sure that you understand what type of interest rate is on your loan.
Securing the Lowest Interest Rate Possible
If you are looking to secure the lowest interest rate possible on your home loan, there are a few points that you should keep in mind. These include:
- Your Income: The lender wants to make sure that you are able to pay back your loan. Therefore, the higher your income, the lower your interest rate is going to be. If you make more money, the lender is more confident that you are going to pay off your loan. Therefore, you may be rewarded with a lower interest rate.
- Your Credit Score: If your credit score is high, you also have a better chance of paying back your loan. Because your credit score is a reflection of your financial health, you want your credit score to be as high as possible when you apply for a home loan. Make sure that you request a free copy of your credit report every year. Correct any inaccuracies on the report before you apply for a home loan.
- Your Down Payment: The smaller the loan the lender has to provide, the greater the chance that you will pay it back. As a result, you may be able to secure a lower interest rate if you put more money down. By reducing the size of the home loan, you reduce the risk to the lender.
- Your Assets: In addition to your income, your lender is also going to take a look at your other assets. This may include stocks, bonds, cars, or other homes. If you have more assets, The lender is more confident you will pay back the loan. They may reward you with a lower interest rate.
- Your Debt to Income Ratio: Finally, the lender is also going to take a look at your other debt. You may have credit card debt, a student loan payment, or a car payment. The more debt you have, the lower the monthly payment you can afford. If you have too much debt, the lender may charge a higher interest rate.
All of these factors are going to play a role in the interest rate you can achieve.
Secure a Lower Interest Rate on Your Loan
If you want to save money on your home loan, then you need to aim for a lower interest rate. Make sure that you take stock of all of these factors. Place yourself in the most competitive position possible to negotiate for a low interest rate on your mortgage loan.