3 things you can do to get a lower mortgage rate
There’s a reason so many people are clamoring to buy homes these days. Mortgage rates are near their historic lows, which means that if you take out a home loan today, you could be spending less money on interest than you normally would.
But just because prices tend to go down doesn’t mean that you are guaranteed a competitive price. If you want to increase your chances of getting a great rate, here are three essential steps you can take.
6 simple tips to get a 1.75% mortgage rate
Secure access to The Ascent’s free guide on how to get the lowest mortgage rate when buying your new home or refinancing. Rates are still at their lowest for decades, so act today to avoid missing out.
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1. Have a high credit score
Your credit score indicates how reliable you are. The higher your score, the more comfortable mortgage lenders will be working with you and the more likely they are to offer you an attractive interest rate on your home loan.
So how high does your credit score have to be to get the best rates? Ultimately, each lender has their own requirements. But as a general rule, once your score hits the mid to high average of 700, you’re in a good position to get the lowest rate a given lender can offer.
If your score might need a little work, there are things you can do to improve it quickly. First, if you are able, pay off some or all of your existing credit card debt, because the more debt you have, the more it can negatively impact your score. Then check your credit report for errors. If there is an error that lowers your score, such as an overdue debt you have already paid, correcting that error could increase your score.
2. Get a shorter term loan
Mortgage lenders generally reward borrowers who take out shorter term loans with lower interest rates. Regardless of your credit score, you are virtually guaranteed to get a lower mortgage rate with a 15 or 20 year loan compared to a 30 year loan.
That said, the downside to taking out a shorter term loan is that you have higher monthly payments. If these don’t fit your budget, a 15 or 20 year loan may not be an option. But if you can make a higher monthly payment, you could be rewarded in the form of a lower rate.
3. Make a higher down payment
Sometimes lenders reward borrowers who put more money on closing with lower interest rates. If your lender only requires a 10% down payment but you can get 20%, you might get an interest rate reduction on your loan in the process. (Other than that, it’s a good idea to try and put 20% on your home to avoid private mortgage insurance, an expensive premium that can make your housing payments more expensive.)
The lower the interest rate on your mortgage, the lower your mortgage payments will be each month. Plus, the lower the rate, the less money you’ll spend on interest over the life of your mortgage. Take these steps if you want to increase your chances of getting a mortgage rate that’s right for you.