How to Get the Best Mortgage Rates

How to Get the best mortgage rates - ratewise
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by ratewise

Getting the best mortgage rate depends on several factors. Shopping around for the best price isn’t enough when it comes to real estate. You have to do a lot of research, and with luck, all of the pieces will fall into order.

By doing everything right the first time, you get rid of the risk associated with long-term bad deals. Here are six things to look for when prioritizing the best mortgage rate possible.

6. Is fixed-rate or ARM better?

There are some things to consider when deciding on a rate that works best. What are your personal intentions for the best mortgage rate in your area? Do you have a specific number or goal in mind?

Going in blind without looking at the top or bottom limits of the market will lead to a lot of early mistakes with fixed-rate or ARM. This often happens when a person chooses a high fixed rate for a home they are keeping for the short term.

If your decision to live in a home is going to be for less than a ten-year investment, then adjustable mortgage rates work better.

ARM has a limit of ten years and starts at an introductory low rate. But the term can be as short as one year, leading to some very interesting projects. ARM loses its value the longer you keep it since the rate fluctuates over time.

What starts out as a low introductory rate can easily turn into the highest rate you’ve ever paid. This doesn’t happen often, but it is something to remember when you decide to use ARM on an investment that lasts for more than a decade.

Fixed-rate is often touted as the best option for most buyers, but it isn’t that simple. Although the rate is consistent, it more or less locks you into a rate that may not be the most favourable value.

And even if you get an outstanding rate, the taxes and insurance have a mind of their own. It won’t get out of hand, but these costs can definitely turn a good deal into an average one.

The best mortgage rate is usually tied to choosing the right choice for the length of your investment. Fixed rates may provide you peace of mind with cost but pay close attention to the finer details before signing the contract. It will not only save you money, but it is guaranteed to save you time.

5. The importance of points

When you want to reduce the interest rate on your mortgage, using discount points is a great way to go about it. By using 1 percent of the loan amount, you can reduce the mortgage by .25 percent.

This isn’t set in stone, and it can be less or more depending on the contract. Points are tricky, and when misused they can lead to adding more debt on top of the original mortgage.

Looking at the calculations on paper makes points seem like a waste of money. It costs you a lot of money upfront, and as a result you are only saving a little bit each month.

Using points is a long-term plan but is often used as a short-term solution. Imagine hitting on 20 at the blackjack table and expecting favourable results each time.

When using points, you should always write down the ‘break-even’ period. This is the single most important part about making the entire process worth it.

If the date seems too far away, then discount points are not worth the hassle. You won’t achieve the best mortgage rate with impatience, and you definitely won’t achieve it by abusing points. We should also point out that mixing discount points with ARM is a bad idea.

Technically, this combo could work. But to get the most out of discount points, time is your friend. The best mortgage rate when using discount points is awaiting man’s game.

4. Understanding closing costs

Closing costs should never sneak up on you if the plan is to get the best mortgage rate. They are the fees charged by third parties and the lender. Depending on the cost of the home, these fees can be massive.

If you don’t plan for closing costs, then prepare for a nasty surprise. The good news is that it isn’t something that affects your mortgage rate.

The bad news is that these fees are something that you have to come out of pocket for. Since closing costs can be as high as 10 percent, there is a real reason to plan ahead for the charges.

Imagine going through the trouble of getting a loan only to falter when the bill is sent for the closing costs. Being unable to pay the fee is the easiest way to undo several months of hard work on your end.

When you have a fear of a high closing cost amount, look for alternatives. You can’t completely avoid the fee, but there are some heavy discounts if you look before everything is finalized.

Take a look at the loan estimate form to see which services can be substituted with a third party. Closing costs include underwriting, title insurance, appraisal fees, and processing charges.

There’s more, but those are the main ones you want to get discounted. There is no harm in looking, so you have some alternative options ready before closing.  

3. How first-time homebuyer programs can save you

First-time home buyer programs are a great resource that is often underutilized. Many overlook this program due to the complicated process involved in even getting a recommendation.

If you’re willing to put up with a lot of paperwork, these programs will save you tons of money upfront. And once you get to a certain point in the buying process, it will simplify the closing.

With all of the praise for first-time homebuyer programs, there are a few cons to getting the best mortgage rate. These programs will give you a major discount, but at the cost of restricting which homes are available for the loan.

If you already have your eye on something, there is no guarantee it will be covered by this program. Some areas are more restrictive than others, and that leads to incredibly long wait times on applications.

For the value, first-time homebuyer programs provide the best mortgage rate possible. Even with the restrictions, it is recommended to apply early, and often if you qualify.

Once you’re matched up with the right program, it’s a matter of patience and finding the right property.

2. What is an acceptable down payment size?

Even if you go by a percentage, there really isn’t a straight answer for the down payment amount. Several factors come into play with a loan, including loans that require no down payment at all.

A few loans even allow you to add the down payment to your mortgage amount.

If you’re low on cash, there is even an option to break the down payment up into payments over the course of the first few mortgage payments. All of this leads to an overall confusion about what is an acceptable down payment amount.

The only true to form answer is to try to aim for a down payment of no more than 3 percent.

You can take the higher side of 3.5 percent if necessary, but anything more than that is considered a high down payment. Keeping this number low is essential in staying on your feet the first few months you invest in the home.

When you look at a home, you’re already visualizing ways to make it your own. That means repairs, upgrades, and buying a lot of new stuff.

This will cause a natural strain on your finances for the first few months of owning the home. Adding a large down payment on top of that will slow your project considerably.

The best mortgage rate is pretty average if it is sandwiched between two large payments out of your own pocket.

1. Comparing the best options for a mortgage

Do you want the best mortgage rate possible? Apply the tips above, and then make a list of your top three lenders. Put a time limit on your correspondence with each and pay close attention to the level of attention provided by each lender.

That will give you a quick peek into what should be expected when dealing with them during the mortgage process.

If none of the three work out, make another list that includes three lenders. It seems trivial, but this will prevent you from wasting unnecessary time with a company that doesn’t match up with your interests.

Since applying for these loans affects your credit score, it is important to narrow down the best choice within 45 days. You’re not going to get the best mortgage rate in the industry with a large chunk of your credit score falling.

Your final decision should be made with confidence, and there should be no doubts about the lender you sign on with. One of the first things you should ask for from the lender is a loan estimate form.

It simplifies the process for both sides and ensures that you’re getting the best mortgage rate possible.

Wrap up

There are a lot of considerations when looking for a home that meets your qualifications. Whether looking for a short term or long-term home, mortgage considerations will determine whether the deal is worth pursuing.

Being resourceful will help you decide what type of mortgage rates will benefit your wallet. But the most important thing to do before buying a home is to start saving money and making sure that your credit score is at an acceptable level.

Find a great deal on your next mortgage

Whatever term suits your budget, RateWise can match you with a local broker that knows how to help—regardless of your credit score! Get pre-approved today.

How does a mortgage work?

A mortgage happens when a lender gives you money to purchase a home and you pay the loan back slowly with interest.

The loan very secure as the value of the loan is secured against the home that it is helping pay for.

What is a mortgage broker?

Mortgage brokers are here to help you find the best mortgage deal on the market for your situation.

We match you to a lender who is willing to give you a mortgage and you don’t have to go searching for the right lender.

What types of mortgages are there?

There are two main types of mortgages, fixed and variable rate. A fixed rate mortgage charges the buyer the same amount of interest over the whole mortgage period, so all of the payments are the same.

A variable rate mortgage involves interest rates that can change, so your payments may be different each time.

If I have bad credit can I still get a mortgage?

Bad credit will not prevent you from getting a mortgage. We work with certified lenders who cater to a diverse range of clients and will find one to fit your situation.

Categories: Mortgages
Tags: How To