To get the best possible rate on your mortgage is will save you a great deal of money in the long run. Even if you already have a mortgage and you think that you are paying to much it could be worth shopping around for the best possible deal. So, how do you get the lowest possible rate?
1. Credit scores
Mortgage lending today is based on tiered pricing, which means that rates are adjusted based on various criteria. One of the main criteria used is your credit score. Your credit score will help to determine whether you qualify for the loan and what rate you’ll pay on your loan, and there is an inverse relationship. The higher your credit score, the lower your mortgage rate, all other things being equal.
2. Employment and income stability
The way that you are paid will have an impact on the rate the most financial institutions will give to you. Mortgage lenders prefer candidates that can prove steady employment for at least the past two years. Long periods of unemployment won’t bode well for your application, and neither will a pattern of declining earnings. In a perfect world, you have been on the same job for at least the last two years, or have made a job change to a higher paying position in that time.
3. Your ratios
Specifically the debt to income ratio that you currently have. The back-end ratio measures the total of all of your monthly minimum debt payments, plus your proposed new housing payment, divided by your stable monthly gross income. The front-end ratio focuses just on your housing costs, excluding all other debts.
4. How much of a down payment can you provide
When it comes to your down payment you need to make sure that you have considered the benefits of putting more or less down as an investment. As a general rule, you’ll need a minimum down payment of 20% of the purchase price of your home in order to get the best mortgage rates. Since mortgages are price adjusted based on risk factors, a loan with 5% down is considered higher risk than one with 20% down, and will carry a higher interest rate.
If you can show that you have substantial savings this can help to lower the interest rate that is offered to you. Cash reserves are measured in terms of the number of months worth of house payments you have saved in cash. The reserve includes money saved in checking or savings accounts, money market funds, or certificates of deposit. However, it generally does not include funds in a retirement plan since that money can only be withdrawn after paying taxes and penalties.
6. Shop around
If you want to get the best possible mortgage rate then you need to shop around for it or have a professional with lots of experience do it for you. This is not easy to do on your own so you should get in touch with a mortgage broker or so that they can scour the market for the best possible mortgage deal available.
7. Don’t settle
If you are currently only able to get a high-interest rate based on your current circumstances this doesn’t mean that you are married to it for the entire amotization. As you build equity and your circumstances change you may be able to get a more favourable rate on your mortgage. Keeping an open mind and always be willing to switch things up can save you a small fortune over the years so make sure you don’t miss out.