When you’re shopping for a home loan, it’s important to understand how mortgage rates are calculated so that you can get the best deal possible. Mortgage rates can seem extremely confusing and complicated, but they don’t have to be! By following these 10 crucial tips, you’ll be well on your way to understanding how mortgage rates work. Also, read the best mortgage rates in bc.
Crucial Mortgage Rate Calculation Tips You Need to Know
1. Check Your Credit Score
If you have a high credit score, lenders will see you as a low-risk borrower and will offer you a lower interest rate accordingly.
2. Shop Around
Don’t just go with the first lender who offers you a loan. Talk to several different lenders about their mortgage rates and compare them side-by-side. Remember also to compare other factors such as fees, closing costs, and customer service.
3. Know Your Loan Options
There are many different types of home loans available, each with its own set of pros and cons. Do your research so that you know all of your options and can choose the loan that’s right for you. Some common types of loans include fixed-rate mortgages, adjustable-rate mortgages, FHA loans, and VA loans.
4. Consider a shorter loan term
If you’re looking for a lower mortgage rate, one option is to choose a shorter loan term such as 15 years instead of 30 years. Of course, this means that you’ll have higher monthly payments but it could save you thousands of dollars in interest over the life of the loan.
5. Compare APR vs. Interest Rate
When shopping around for loans, you’ll notice that some lenders quote an interest rate while others quote an APR (annual percentage rate). It’s important to compare both figures because they can vary quite a bit depending on the lender. The interest rate is the yearly cost of borrowing money expressed as a percentage, while the APR includes not only the interest rate but also other costs such as points, origination fees, and certain closing costs.
6. Pay Points to Lower Your Rate
Some lenders allow borrowers to pay “points” in order to lower their interest rate. One point equals 1% of the total loan amount, so paying one point on a $200,000 loan would cost $2,000 at closing time.
7. Get Pre-Approved
Getting pre-approved for a home loan indicates to sellers that you’re serious about buying a house and that you have been approved for financing up to a certain amount by a lender.
8. Make A Larger Down Payment
Making a down payment of 20% or more will help you avoid having to pay Private Mortgage Insurance (PMI), which can add several hundred dollars to your monthly payments if your down payment is less than 20%.
9. Don’t Be Afraid To Negotiate
Once you’ve been approved for financing, don’t be afraid to negotiate with lenders on things like origination fees, points, closing costs, etc. Lenders want your business and may be willing to give you some financial concessions to earn it.
10. lock In Your Rate
If you’re happy with the terms offered by a particular lender, don’t wait too long before locking in your interest rate. Rates change daily, and even if rates go down slightly after locking in, it probably won’t make up for any increase that may occur before closing.