As you’ve likely heard in news reports, the Federal Reserve plans on raising interest rates in March 2022. If you are looking to buy or refinance a home, you might hope to get a lower interest rate on a mortgage soon before next interest rate hike kicks in. Here are some ways to get your interest rate lower.
Learn where your credit stands before applying / Improve Your Credit Score and History
Your credit score gives lenders a snapshot of your experience managing credit, and they use this information to predict how you might handle credit in the future. Along these lines, mortgage lenders typically view a high credit score as an indicator you’ll be a strong borrower and repay your loan as agreed. When lenders are confident, you’ll be responsible with credit, they’re more likely to reward you with lower interest rates on a mortgage.
As a general rule, the higher your credit score, the lower your interest rate may be on a mortgage. If your credit is less-than-ideal, give us a call at 844-349-8727 to help you with a consultation and look over where the areas of opportunities are. We offer 4 different services under one roof to assist you with your goals. For the mean time you want to continue to Make all your payments on time and pay down your credit balances.
- Make all payments on time. Your payment history is the most significant factor determining your credit score. That’s why it’s so important to pay every bill on time. Late payments can harm your credit history for up to seven years. Remember Payment History accounts for 35% of your credit score.
- Pay down your credit balances. Your credit utilization ratio lets lenders know how much of your available credit limits you’re using. It’s also the second most important factor determining your credit score, so you’ll want to keep your balances below 10% to maximize your score. Remember amounts owed or debt ratio is 30% factor of your credit score.
- Hold off on applying for new credit. Getting a new credit card or loan just before you apply for a new mortgage is not the best timing. For starters, a small, temporary hit to your credit score is relatively common when you open a new account. Don’t apply for other forms of credit within three to six months of applying for a mortgage
- Don’t close old credit card accounts. It may be tempting to close old credit cards, especially if they have an annual fee. But if your goal is to build good credit, consider keeping old accounts open because they can help keep your credit utilization low. Length of Credit history is 15% of your credit score.
Make a Bigger Down Payment
The more money you put toward your down payment, the better your chances are of scoring a lower interest rate on your mortgage. When you put down a significant percentage of the purchase price, you lower the loan-to-value (LTV) ratio for the home. That’s a number lenders use to assess their risk on a loan. The lower your loan amount is compared with your home’s value, the more likely the lender will see you as a safe borrower—and the more likely you’ll be to secure a lower interest rate. On the other hand, the smaller your down payment, the riskier a lender will view your loan, which could result in a higher interest rate. It’s better to put 20 percent down if you want the lowest possible interest rate and monthly payment. If you can do more that would be ideal, however if you do less than 20 percent make sure you have a very strong credit score from 700-850 for lower interest rate. Credit Consultants can help you with unnecessary expenses and how to reallocate your money to optimize savings for your home down payment.
Shorten Your Loan Term
You can usually qualify for a lower interest rate if you shorten your loan term from, say, a 30-year loan to a 10-year or 15-year mortgage. Short-term loans typically have lower mortgage rates because they are less risky for the lender. If you’ve found your long-term home, and you can comfortably manage the payments, consider getting a shorter-term loan to pay off your home sooner. If you are already on a home loan we can work together to get a better credit score and with clean credit history to put you in the best position to refinance and shorten your loan term.
Lock in a Rate Before Rates Increase
The closing process can take several weeks, and interest rates can fluctuate during that time. Once you sign the purchase agreement and are approved for a home loan, talk to your lender about locking in your mortgage rate. By doing so, your interest rate will stay the same, regardless of what happens in the market. You may have to pay a fee to lock in a rate, but not always. Remember this is the final step after you have already gone through your credit review and repair process and have been able to save for a bigger down payment. Do not put yourself in a position of applying and barely qualifying with minimal credit score and high interest rates. At the end of the day you will end up with that high monthly payment not your realtor.