While not everyone is aware of it, there are several ways you can work with your lender to make sure you have the best mortgage rate you can command, given you current credit rating and income to debt ratio. Taking the time to ask a few simple questions and weighing the answers carefully can make a big difference in how much interest you will pay over the course of the mortgage, and can also give you some idea of the impact that the monthly payment will have on your household budget. Here are some aspects of the mortgage deal to discuss with the lender.
Before making any commitment to a given mortgage, ask to review the listing of current mortgage interest rates available. This will help you to get an idea of how the rate you were quoted stacks up in comparison to other offers currently available. Make sure to qualify the rates in terms of whether they are the lowest rates quoted for that day or week. You may find that waiting a few days might result in an offer of a slightly lower rate.
Along with the amount of the mortgage rate, take a close look at the type of mortgage the lender is recommending. If the mortgage carries a fixed rate, compare the rate to the current average interest rate for home loans. For mortgages where the quoted rate is adjustable, make sure it is below the current average rate and also ask the lender what impact the adjustable rate will have on your monthly payments. Usually, an increase in the average rate will trigger an upward adjustment in your monthly installment payment. However, not every lender automatically adjusts your payment downward when rates decrease. Knowing how your lender handles adjustable or variable rates will give you some idea of whether this approach is in your best interests over the long-term or if going with a low fixed rate makes more sense.
Always make it a point to ask about the annual percentage rate, or APR, that applies to the loan. This is significant, because the APR not only addresses the mortgage rate but also broker fees and credit charges that are named in the contract. Donít overlook points, since these types of broker fees play an important role in your interest rate. Essentially, the higher the points the lower your interest. By looking at each of these factors, there may be some room to negotiate and obtain a lower mortgage rate in order to offset the costs of these other charges.
When it comes to defining each of the fees, make sure you understand what is covered by each one. There are all sorts of fees that may be part of the loan contract, such as underwriting fees and closing costs. You may be able to pay some of these fees up front, rather than bundling them into your loan and ultimately paying interest on them. Some lenders will also negotiate on the fees or offer a lower mortgage rate in order to offset the fees somewhat.
If possible, put down at least twenty percent of the purchase price of the home as a down payment. Simply put, the more you pay up front, the less interest charges you will pay over the course of the loan. By putting up a larger down payment, you also reduce the degree of risk the lender is assuming by extending the mortgage to you, since in the event of default the lender is much more likely to recoup his or her investment. This little extra may be just enough to earn a slightly lower mortgage rate.
Donít hesitate to compare the offer on the table with what you can get elsewhere. Obtain quotes from other sources; making sure that all the benefits and terms provided by your lender is also included in each alternative quote you secure. This will allow you to come back to the table, show the lender what you have learned, and provide him or her with the opportunity to match or beat the best of those other offers. If the lender chooses to extend a better rate, and you are comfortable with all the other terms and provisions of the mortgage contract, then make the commitment. If the lender will not budge, then start talks with some of the other lenders who provided you with quotes and terms. One of them is bound to provide you with an offer that is just right.
Obtaining the best mortgage rate along with the best terms is one of the most important aspects of financing the purchase of a new home. Since it is a deal that you will live with for a number of years, it is important to be happy with the terms and provisions of the agreement. Taking some time up front to make sure you get the best rate possible will help keep more money in your pocket and allow you to enjoy your new home for many years to come.
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Wesley Pritchard is a freelance writer who writes about the mortgage industry, often focusing on a specific topic such as mortgage rates.
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