How to Find the Best Mortgage Rates
Researching even the simplest of topics online these days may seem like a Herculean task. And considering the vast amount of information we receive in a search, curated from an ever growing list of creators, it has become just as important to evaluate the author as it is the content.
If what you’re searching for is a financial product with an attached commission, you must understand that providing you with the best information for your situation is likely no longer the chief motivation of the provider.
Take your mortgage, for example. A simple Google search that contains the word ‘mortgage’ will return results for so many products and services you will need to hire a sherpa to guide you down the right path. You will see websites offering ‘fixed rates’ vs ‘adjustable rates’, ‘reverse mortgages’, ‘refinancing’, ‘low credit’ mortgages, mortgage calculators as well as offers for every type of loan you can imagine. Just try finding a mortgage calculator that doesn’t require that you provide them with all of your personal information (don’t worry—we’ve seen fit to include one here).
The best way to approach the task of finding the right mortgage and provider, is to prepare yourself by answering a few simple questions:
“What Is A Mortgage, And How Much Can You Afford For Monthly Payments?”
A mortgage is when a bank, or other creditor pays for a property in full while retaining full ownership rights until the debt is satisfied in full. Repayment of a mortgage is almost exclusively done on a monthly schedule and includes an interest rate. These payments are referred to as mortgage payments.
The next question you so often hear is “how much are you looking to spend on a house?” rather than “how much can you afford to spend on a house?” Because we often find these answers to be incongruous with one another, the wizards behind moneywizard.co have provided a mortgage calculator that can help you align the answers to these two questions more closely.
“How Can I Achieve The Best Mortgage Rate?”
To answer this question we need to first answer a few others, and discuss a few key points.
“What Type Of Loan Is Right For You?”
Is it more appropriate for you to choose an adjustable rate mortgage (ARM) or a fixed rate? An ARM typically offers a lower introductory rate but comes with the risk of rising interest rates ( potentially much higher). These mortgages will also be offered with terms within the term. For example if the life of the mortgage is 30 years, there will be periods of multiples of years (generally one through five) where the interest rate will remain constant. It is when this term expires that it would be subject to a change.
With a fixed term, the interest rates will remain constant throughout the entire life of the mortgage. Many people choose this if the interest rates are at a current low), or if the notion of always knowing what they need to budget each month is an attractive one. This isn’t to say that insurance, property taxes or other costs won’t change—just that the mortgage payment itself won’t.
“Does It Make Sense For You To Invest In Mortgage Points Or Pay A Larger Down Payment?”
Mortgage points are an interesting tool provided you can afford them. Essentially, you’re exchanging an upfront payment for a reduction in your interest rate. For example, let’s say the interest rate you are offered is 3.00%. You may be offered a 0.25 reduction in your interest rate in exchange for a lump sum payment of $2,000,. It can take upwards of 10 years to make back that initial investment—so be sure that you plan on keeping the home for at least that period of time. Similarly, if you are able to provide a larger down payment, this will offer you a reduction in your mortgage insurance premiums, which will again save you in the long run. If you’re able to do both that’s great. But if you are forced to choose just one option, then it depends on how long you expect to remain in the home. If you think that might be for the full length of the mortgage then statistics show that paying the larger down payment is the better investment. If, however, you expect to sell the home before the full term, your better option is to purchase mortgage points and reduce your interest rate. Your mortgage provider will be more than happy to run the numbers for you to determine which option is the best.
“Are There Any State Or Federal Programs Aimed At Offering Assistance To Someone In Your Buying Situation?”
Depending on your state, there may be programs available to financially assist first time (even repeat) home buyers with the purchasing of a home. These include down payment grants, assistance with favorable interest rates (such as guaranteeing low or even zero percent interest rates) as well as tax breaks (many times a combination of all three). Many of these programs are based on the geographical area where you currently live, or are looking to buy—many times done to help facilitate growing or regrowing the population of a specific area. Grants and programs are also routinely geared towards people in a certain profession—teachers, first responders, military personnel, etc. It is a great way to ensure a certain area has enough teachers, nurses, etc.
“How Much Of A Down Payment Can You Afford?”
The size of the down payment you can provide will directly affect your monthly mortgage payment—and even the overall amount you end up paying for your home. In many cases, the larger the down payment the lower the interest rate you’ll be offered. A standard down payment on a home is 10–20%, and the amount you’re able to put down can affect the type of mortgage you are offered. If you can wait to purchase, the more you can put down on the house, the more you will save yourself in the long run.
What About Assistance Or Grants For The Down Payment
Yes, as mentioned previously you may also qualify for either partial or total assistance in paying your down payment (residents of many rural areas can qualify for 100%financing regarding their deposit). This means that the entire cost of the house (including the down payment) can be repaid with monthly mortgage payments. Many active military veterans (or their spouses) qualify for similar programs that will allow full financing of the purchase price.
- Veterans Affairs (VA) currently offers a low and no down payment loan
- The United States Department of Agriculture (USDA) currently offers zero down payment loans and help with closing costs
- The Federal Housing Administration (FHA) currently offers mortgage incentives as well as government backed loans that guarantee down payments as low as just 3-3.5% of the homes purchase price.
“What Is Your Current Credit Score And Can You Improve It?”
An often overlooked method for improving your eventual mortgage rate is by finding out what your credit score is, and then determine what ways if any you can improve it. Even a small improvement in your credit score can lower your rate by a few basis points and have a huge effect on both the principal and interest you pay over the full life of your mortgage.
“Have You Shopped Around?”
This is a big one—and one that people avoid doing because they think submitting multiple mortgage applications will hurt their credit score. A little known loophole provided by the big three credit bureaus is that. once you submit a credit application from a mortgage broker you have 45 days to submit as many applications from other mortgage lenders as you would like without having it hurt your score. Obviously, this has remained a closely guarded secret of mortgage brokers because the last thing they want is you shopping around.
This process is known as getting a mortgage pre-approval. And when you receive an offer you like, the lender will then provide you with a pre approval letter which is valid for 60–90 days.
“When To Refinance Your Mortgage?”
Refinancing a mortgage has become an entire industry unto itself. A way for homeowners to tap into the equity they have built up in their home and quickly raise funds to cover a financial emergency, consolidate debt or simply enjoy the fruits of their labor.
The other reasons to refinance are to change the type of mortgage you have (adjustable rate to fixed rate), to obtain a lower interest rate, or even lower your term. Because refinancing does cost money, (and requires another hard credit check) it is recommended that you only refinance to obtain a better interest rate if the new rate is lowered by 1–2%.
If the new interest rate that is now available to you (prime rates could have gone down on their own, your credit has greatly improved or both) is 3 or 4 percentage points lower than what you are currently paying, you can reduce the length of your mortgage by years. Even many years—especially if you are ok keeping your payments the same as what you are currently paying.
Whether you are converting the type of mortgage, tapping into equity to consolidate debt, or pursuing a better interest rate, make sure you perform due diligence and ensure that it makes sense for your long-term financial health.
The wizards behind Moneywizard.co have provided tools and done the research to assist in your financial journey. And while many of the experts you meet along the way may have their own finances in mind when offering you advice, our greatest measure of success is that we remain a trusted source of information.