Increasing interest rates can cause consumers to kick themselves for not acting earlier to buy or refinance a home.
With the frustratingly fickle nature of mortgage rates, hopeful homebuyers would do well to draw upon the wisdom of the serenity prayer: Accept the things you cannot change and change the things you can.
While you may be powerless when it comes to financial market forces and ever-fluctuating average rates, you have a great deal of control over the factors that determine your individual mortgage rate. That’s because the loan and lender you choose, along with the financial credibility you build, will play a significant role in the mortgage rate you are offered.
If you can lower your rate by just half a percentage point you’ll be able to save tens of thousands of dollars over the life of your mortgage loan. Comparatively higher rates, on the other hand, mean higher monthly payments and a slower build-up of equity.
Whether interest rates are on their way down or inching back up, here are 5 insider tips from Zions Bank that can help you get the best possible mortgage rate on your home loan.
1. Shop mortgage rates with multiple lenders
Shopping around for the best mortgage rate is well worth the effort and is something every homebuyer can do. To get the best mortgage rate, compare loan estimates from several different mortgage lenders. You can get multiple quotes without harming your credit score by limiting your mortgage shopping to a 45-day window. Within that time frame, multiple preapprovals and loan estimates will count as a single credit check, according to the Consumer Financial Protection Bureau.
When comparing loan estimates, remember that the interest rate alone doesn’t tell the whole story — it should be considered in the context of closing costs and other fees, which could potentially offset a lower mortgage rate.
2. Improve your credit score
Your credit score is one of the biggest factors impacting the mortgage rate you’ll be offered by lenders. To qualify for the best rates, you’ll need a credit score upwards of 740. A 100-point difference in your FICO score could change your monthly payment by hundreds of dollars and your overall interest payments by tens of thousands of dollars.
Before applying for a mortgage, make sure your credit score is in top shape. You can request a free copy of your credit report from each of the three major reporting companies — Equifax, Experian, and TransUnion — by visiting AnnualCreditReport.com. Check your credit report for errors as well as weak areas that could be strengthened to help you qualify for a better rate.
3. Pay down your mortgage rate with points
Many mortgage lenders give you the option of lowering your set mortgage rate by purchasing discount points. A discount point is an upfront fee — equal to 1 percent of your mortgage amount — that reduces your interest rate by a fixed amount — anywhere from one-eighth to one-quarter of a percentage point per discount point.
If you are offered a 30-year fixed mortgage at 5 percent, for example, buying two discount points at a total of $5,000 could bring your rate down to 4.5 percent. Whether this interest-saving strategy makes sense for you depends on how much money you have to put down and how long you plan to stay in your house.
4. Consider a shorter loan term
In general, the shorter a loan’s term length, the lower its interest rate. If you can afford the higher monthly payments of a 10-, 15-, or 20-year fixed rate mortgage loan , you could save thousands in interest payments.
Additionally, an adjustable-rate mortgage, or ARM loan, carries a lower interest rate initially than a conventional mortgage loan. The low-rate introductory period of an ARM loan may last 3 to 10 years, after which the rate is adjusted according to market conditions at regular intervals. If you don’t plan to hold onto your home for long, an adjustable-rate home loan, like the Zions Bank ARM, could be a smart choice for interest savings.
5. Save for a down payment
If you plan to put down less than 20 percent on your home, see what increasing your down payment would do for your interest rate. Interest rates are tiered based on risk factors, and because mortgage loans with less money down are considered riskier, they charge more interest. A loan with a 5 percent down payment, for example, is considered a greater risk and will typically carry a higher rate than a loan with a 20 percent down payment.
Once you have found the best mortgage rate, you can request a rate lock so you don’t have to worry if rates go up between the time you submit an offer and close on the house. A rate lock freezes an interest rate on a mortgage for a period of time, usually 30 to 60 days.
To learn more about how you can get the best possible home mortgage rate and other home loan options, contact a Zions Bank Mortgage loan officer.
