A Guide to Getting the Best Mortgage Interest Rate

Forecasters predict that the mortgage rates will rise in 2011. However, they will still remain at historic lows. This means that it’s a great time to get a home loan. Before choosing a loan, follow some simple steps to get the best mortgage interest rate.

Interest is the cost a buyer pays to take out a loan. It is figured as a percentage of the total amount borrowed. Paying a low cost for a loan is important. It means a lower monthly payment and less total money spent over the life of a loan. It could end up saving a buyer hundreds of thousands of dollars.

Buyers can choose between fixed-rate and adjustable-rate mortgages. A fixed mortgage locks in one interest rate for the life of the loan. An ARM offers a low initial rate and then raises it after a stated period of time. ARMs come with three, five, seven, and ten-year terms. Buyers must consider how long they will stay in the house. If they plan to sell within ten years, an ARM can be a good idea. If they plan to stay long-term, fixed is the right choice.

Two types of loans should be avoided. One is called an Option ARM. It allows the payer to select how much they want to pay each month. Most people pay the minimum payment to save money. This means that they never reduce the principal of their loan. Buyers need to also avoid interest-only loans. They may seem cheaper at first. However, all of the money a homeowner pays goes directly to the bank. The homeowner adds no equity to the home.

Buyers should follow several important tips to keep down their loan costs. First, buyers must check their credit reports before applying for a loan. Second, buyers must pay off as much debt as possible. Third, buyers must make sure to pay bills on time. Mistakes on a credit report bring down a credit score. Paying down debt and paying on time drives up a credit score. A higher credit score equals a lower-cost loan.

Buyers should know their closing costs before making an offer on a home. It is important to be prequalified for a loan. This lets buyers know the exact amount that they can borrow. It also gives them an idea of what their payments will be before they make a commitment.

Buyers should also know their price range. Buyers should not let realtors show them homes outside their price range. They also should not allow lenders to persuade them to over-borrow. In addition, buyers should compare loan offers. Many websites allow potential buyers to compare available loans from different lenders. Once they pick the most promising products, they should call each lender for specific details.

Getting a lower mortgage interest rate is simple. Know the kind of mortgage to get. Then, clean up the credit report, get prequalified, and compare lenders. Finally, don’t make a purchase outside of the right price range. All of these steps will help buyers keep as much of their money as possible.