When shopping for a mortgage, it’s important to know what factors contribute to a good mortgage rate and how to shop around for the best deal.
Fixed vs. Adjustable Rate Mortgages
The two main types of mortgages that are available are fixed rate and adjustable rate mortgages (ARM). The majority of borrowers opt for fixed rate mortgages, which have a set interest rate that remains the same throughout the life of the loan. This type of loan provides borrowers with the peace of mind of knowing their payments won’t change, as well as potential tax benefits. On the other hand, ARMs have lower initial interest rates than fixed rate mortgages, but the rate can adjust over time according to changes in the market. While the initial payment may be lower, the borrower could face higher costs down the road.
Credit Score and Loan Program
Your credit score is one of the most influential factors when it comes to determining your mortgage rate. The higher your credit score, the lower your interest rate will be. It’s important to keep an eye on your credit score and make sure you’re taking steps to improve it if necessary. In addition, the type of loan program you choose can also affect your interest rate. For example, if you’re looking for a lower rate, you may want to consider an FHA loan or HomeReady loan.
Down Payment
A higher down payment can also get you a better mortgage rate. Generally speaking, the more money you are able to put down upfront, the lower your rate will be. That’s because lenders view borrowers who can make a larger down payment as less of a risk.
Shopping Around
Finally, it’s important to shop around when looking for a mortgage rate. Different lenders offer different rates and terms, so it’s beneficial to compare options to find the best deal for your situation. It’s also a good idea to consider the fees associated with each loan, as well as the customer service experience.
In summary, mortgage rates are currently at an all-time low, making now a great time to buy or refinance a home. Factors that contribute to a good mortgage rate include the type of loan program chosen, credit score, and down payment size. Additionally, it’s important to shop around to compare rates and terms from different lenders. By taking all of these factors into consideration, borrowers can find the best mortgage rate for their situation.
This article was contributed on Nov 11, 2023
