Summary: 6 Tips for Finding the Best Home Interest Rates for Mortgage Loans
Buying a home is an exciting step. It is also a very expensive step.
So expensive, in fact, that most people cannot pay for a house out of pocket, which has resulted in the most widely discussed loan out there: the mortgage.
Naturally, the lender needs to make money, so home loan interest rates are a serious consideration for potential homebuyers.
Home interest rates are a very important factor for potential borrowers to consider. The rate at which you borrow money — the home loan interest rates — will determine whether you can afford to repay the loan and how much of a burden your mortgage repayment will be.
According to a Pew Charitable Trusts report, 80 percent of Americans are in debt. Of that 80 percent, over 44 percent of Americans are in debt due to their mortgage; you can see why finding competitive home mortgage interest rates would be of considerable importance.
Finding competitive home interest rates is a huge priority for those hoping for homeownership through a mortgage. When you are exploring home loan interest rates, variable versus fixed is not the only things you have to think about.
While comparing home mortgage interest rates, homeowners are advised to explore several lenders, banks, and financial institutions and utilize a number of strategies to find the best interest rate for their home loan.
This article will outline the top six tips for finding the best home interest rates. Using the advice below should help any reader find competitive home mortgage interest rates and be well on their way to affordable homeownership.
1. Looking for a Good Interest Rate for a Home Loan? Compare Home Loan Interest Rates!
What do you do when you are looking for a new doctor? You shop around and compare. What do you do when you are looking for a new vehicle? You shop around and compare.
You do this for almost all major purchases, so you should be doing the same when finding the best interest rate for home loans. If you do not compare home loan interest rates, you run the risk of losing precious money.
Interest rates on home loans vary, so shopping around and comparing the different rates, terms, and conditions is vital for getting the best, most competitive deal.
Your mortgage will (most likely) be the most expensive thing you pay for each month, and interest rates for home loans play a huge part in how expensive that monthly payment winds up being.
Taking the time to research interest rates on home loans and compare home loan interest rates can be the difference between being cash strapped or comfortable later on.
To start comparing interest rates on home loans, you can use a couple of strategies. The most straightforward strategy would be to compare the interest rates for home loans from your local banks or other familiar financial institutions. This keeps your search for interest rates on homes relatively close to home, especially if familiarity matters to you.
On the other hand, if you want to cast your net a little wider while looking for interest rates on home loans, you can run an “interest rates home loans” search online and explore the results or use comparison tools for interest rates on homes. This willingness to branch out and look a little further than where you are situated may help you access some of the best home interest rates.
If you want to compare interest rates on homes based on a number of variables including the loan amount and loan type, you can use the best home interest rates comparison tools provided by Bankrate.com. These home loan interest rate comparison tools allow you to avoid buyer’s remorse by being comfortable with your final decision.
The other beneficial thing about these home loan interest rate comparison tools is their ability to help you understand what variables are at play when comparing new home interest rates and deciding on the best home interest rates.
While you are plugging info into the different data fields in a home loan interest rate comparison tool, you will acquire knowledge about the kinds of questions you should be asking as you conduct your research into the best new home interest rates. It will also provide you with a way to see a range of viable home interest rates you can afford.
When it comes to comparing home loan interest rates in order to find the best home interest rates, patience is key. If you can, do not rush the process and conduct thorough research into finding competitive home mortgage interest rates and new home interest rates.
2. Looking for the Best Home Interest Rates? How Is That Credit Score Looking?
Different people get different home interest rates. Those who are unfamiliar with how lending works may exclaim that this is unfair, but if you silently winced, you know exactly what this is referring to: credit scores.
Credit scores are a shortcut for lenders to determine how trustworthy a borrower you are. If you want competitive home loan interest rates, you will need a stellar credit score. The lower your credit score, the worse off your options when it comes to the range of home mortgage interest rates you can choose from.
There are several steps you can take to beef up your credit score to gain access to better home interest rates:
- Check Your Credit Report for Errors
Whenever you take out a loan or use any kind of credit product, your relationship with the lender is reported to credit reporting agencies. These reports detail the amount of money you have borrowed, whether you make payments on time, and more. Since banks do not have time to read everyone’s credit report to see if they are trustworthy and eligible for competitive home loan interest rates, they use credit scores instead.
The most popularly used credit score is provided by FICO. An algorithm (that is not made publicly available) weighs factors like your credit history, amount of credit, credit diversity, and promptness with payments to determine how trustworthy of a borrower you are.
The higher your credit score, the better the home loan interest rates you have access to. Since your credit score is based on your credit report, check to ensure that everything has been reported correctly. Banks make mistakes, but be proactive, check, and make sure a human error does not affect your ability to get cheap home mortgage interest rates.
- Aggressively Pay Down Your Debt
This is just a good strategy for your financial health, period. When it comes to improving your credit score so you can access affordable home loan interest rates, this strategy is important. Paying down your debt can increase your credit score and improve your access to better home interest rates.
- Start Making Payments on Time
Even if you can only afford to make the minimum payment, make sure you make that minimum payment on time. Late payments can wreak havoc on your credit score, since it indicates to lenders that you cannot honor the terms of your agreement.
If you cannot afford to dedicate large amounts of money to paying down debt, make sure you are making prompt payments at the very least. Late payments will not help you obtain lower home loan interest rates.
Interest rates exist for two main reasons: 1) so that the lender makes money and 2) to mitigate some of the risk associated with lending money to a person who could potentially default on the loan.
The riskier a lender you seem, the worse the home loan interest rates you will be offered. The quickest way for lenders to determine how much of a risk you are is through your credit score, so take some time to improve it if needed.
All-in-One Change Management Tools
Top Rated Toolkit for Change Managers.
Get Your Change Management Tool Today...
3. Top up Your Down Payment for Better Home Loan Interest Rates
If your loan to value ratio is leaning toward a high loan amount, then you are considered a riskier borrower. Those with a larger down payment are looked at more favorably by lenders.
If you are looking for more competitive home interest rates and cannot seem to get any better home loan interest rates, consider adding to the down payment you are willing to offer.
This can help homeownership be more affordable in several ways.
First, you will gain access to better home interest rates because the equity you have in the home makes you less of a risk. Secondly, your mortgage payments will be smaller each month. Finally, your insurance will also be less.
Those with higher loans and a smaller down payment are typically required to pay higher premiums on their mortgage insurance.
Popular Article: What Is a Home Warranty? – What Does It Cover Complaints & Review)
4. Compare the Benefits of Variable Home Interest Rates vs. Fixed Home Interest Rates When Searching for Good Home Loan Interest Rates
When you are looking for home loan interest rates, you are going to have to decide whether you want a fixed interest rate or a variable interest rate.
With variable home interest rates, your rate is occasionally adjusted based on market conditions. This is great when the interest rates are low but can mean a costly adjustment when market rates go up. This is also known as an adjustable rate mortgage.
If you opt for fixed home interest rates, you benefit from always knowing what your rate is and being able to plan for it. On the other hand, if interest rates plummet, you are stuck with the home loan interest rates you signed up for.
One suggestion is to pick your home mortgage interest rates based on how long you believe you will be living in the home. If it will be a home you have for the long term, the certainty of fixed home interest rates may be your best bet.
If you do decide you want to take advantage of the variable rates, there is the option of refinancing for your preferred home loan interest rates down the road.
If you think you will only be living in your home for the short term, settle on variable home interest rates (assuming they are lower) and then sell your home when the rates start going up. Keep in mind that this approach to settling on home mortgage interest rates works best for a home you are not planning to live in for a long time or a home that you are using as an investment property.
5. Consult Your Friends and Family on the Best Home Loan Interest Rates
If you have friends or family who have already bought a home and were happy with the experience, ask them for advice. They may have found very competitive home loan interest rates and have recommendations for which financial institutions offer the best home interest rates.
Finding the home mortgage interest rates that fit your budget may be as simple as picking up the phone and calling your brother-in-law, best friend, or colleague.
Of course, the best thing to do is take your friends’ and family’s advice on home interest rates and use it to supplement your own research on home loan interest rates.
If you simply use the information you are provided from your friends and family you run the risk of missing out on home mortgage interest rates that may not have been available when they bought their home. Diversify when you conduct this kind of research.
6. Consider Alternative Options for Getting the Best Home Interest Rates
There are other options for getting the best home interest rates, and sometimes you can access better home loan interest rates even after you have agreed to a mortgage. You can refinance your existing mortgage and get better home mortgage interest rates on that second loan. Another roundabout option that may or may not result in the best interest rate on home loans is an interest-only home loan.
Sometimes, homeowners agree to home interest rates that prove to be unattractive down the line. In this case, they can refinance their existing mortgage. Simply speaking, you get a new loan that pays off the existing mortgage and then comes with new terms and conditions and home loan interest rates. This may incur penalties, but if you do your research properly, you can wind up with a more manageable arrangement that carries better home mortgage interest rates.
Another interest option is an interest-only home loan. This may not necessarily result in lower home interest rates, but it will definitely result in a lower monthly payment on your mortgage.
So, how does an interest-only home loan work? Basically, you only pay the interest on the outstanding loan and nothing toward repaying the principal balance. On the plus side, your monthly payments are lower, and if you know you will not be living in this house or owning it for long, you can sell it and make some money off of the sale.
However, this can be a tricky rope to walk if the home interest rates go up (with an adjustable or variable rate mortgage) or if you decide to live in it long term and cannot commit any money toward the principle.
While an interest-only home loan is an option for lower monthly payments, home buyers are advised to research ways they can have low home interest rates while also paying off their principal so that they do not exchange comfort in the short term for overwhelming debt in the long term.
AdvisoryHQ (AHQ) Disclaimer:
Reasonable efforts have been made by AdvisoryHQ to present accurate information, however all info is presented without warranty. Review AdvisoryHQ’s Terms for details. Also review each firm’s site for the most updated data, rates and info.
Note: Firms and products, including the one(s) reviewed above, may be AdvisoryHQ's affiliates. Click to view AdvisoryHQ's advertiser disclosures.