Low mortgage rates may be hard to obtain, but they are advertised nearly everywhere, enticing home buyers to check them out and see what kind of deal they can get. However, a number of different factors play into obtaining low mortgage rates. Getting such a rate may depend on timing, credit, term of loans and other factors.
One of the easiest things for a consumer to do is wait for low mortgage rates. During times of economic hardship, national banks will lower their interest rates, which in turn will inspire other banks to lower interest rates as well, as money becomes cheaper to borrow. If an individual is in a strong position despite the national or international situation, this may be the best time to buy real estate because low mortgage rates will be plentiful among many lenders.
While timing is a big key to low mortgage rates, an even bigger part of the puzzle is having an excellent credit report. Those with a high credit rating are considered to be lower risk. The lower the risk you pose to a lender, the less it will cost for the home loan. Therefore, taking steps to improve your credit rating before applying for a home loan could save you thousands or tens of thousands of dollars over the life of that loan.
Choosing a variable interest rate can also lead to lower rates, at least in the short-term. Some adjustable rate mortgages come with a fixed rate for several years, then change to another rate for the rest of the term. This rate may either be fixed or adjustable. However, generally the first few years of the loan is at lower mortgage rates. After that, instead of jumping to a much higher rate, refinancing may be an option.
The other option for low mortgage rates is to put down a larger down payment. This shows the lender that a borrower can be responsible and save money for certain purposes. Further, it reduces the risk to the lender by building some immediate equity in the home in case a foreclosure needs to happen at some point down the road.
Further, choosing a 15-year term will often produce low mortgage rates. A shorter mortgage poses less risk to the lender by reducing the amount of time the loan is outstanding and building equity faster. Together, these two things can not only work to lower interest rates, but save a substantial amount of money over the course of the loan by not paying on the loan so long.
