You probably know that the lower your mortgage rate, the cheaper your monthly mortgage payments will be. But getting an affordable rate isn’t just a matter of luck. Here are some specific steps you can take to get a low interest rate on your mortgage.
6 simple tips to get a 1.75% mortgage rate
Secure access to The Ascent’s free guide that reveals how to get the lowest mortgage rate on your new home purchase or when refinancing. Rates are still at their lowest for decades, so act today to avoid missing out.
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1. Improve your credit score
The higher your credit score, the more likely mortgage lenders are to offer you a lower interest rate on a home loan. Your goal should be to get your credit score in the mid 700s or so. If you’re not there yet, start by paying all incoming bills on time, which will improve your payment history. Also, try to pay off some existing credit card debt if possible. This will lower your credit usage rate, another big factor that affects your score.
Finally, be sure to check your credit report for errors. Mistakes like debts to your name that you never accumulated could lower your score, and correcting them could increase that number quickly.
2. Get a 15-year loan
The shorter the term of your mortgage, the lower the rate you are likely to get. Many people avoid 15-year loans because they come with higher monthly payments. But if you are able to fit a higher payment into your budget, you will benefit from paying less interest not only on a monthly basis, but throughout the life of your loan.
3. Lock in your rate, even if it means paying a fee
Mortgages can take weeks or months to close, and during that time you run the risk that the initial interest rate offered to you will rise – that is, unless you get a mortgage rate freeze. With a rate lock-in, you get a specific interest rate for a predefined period which is typically 15 to 60 days.
Some mortgage lenders charge a fee to lock in your rate. For a 60-day rate freeze, you can pay up to 0.50% of your loan amount. But if you happen to apply for a mortgage when rates have really fallen, it may be a good idea to pay a modest fee for a rate freeze, just as it sometimes makes sense to pay mortgage points in exchange for it. ‘a lower rate.
4. Take the tour
The more deals you search for from lenders while securing a mortgage, the more likely you are to get a low interest rate on your loan. Once you have different offers, you will be able to compare the rates you are eligible for and identify the best deal.
You can also use offers from different lenders as a negotiating tool. For example, suppose a lender offers a lower interest rate than others, but has higher closing costs, which are the fees you will have to pay to finalize your loan. You may want to go to a lender with lower closing costs. In this case, you return your offer for the best interest rate to a lender with more competitive closing costs and ask that lender to lower their rate. If this lender wants your business, they can work with you.
5. Look at an MRA if the circumstances are right
With an adjustable rate mortgage, or ARM, you lock in your interest rate for a predefined period, after which it can go up. Obviously, there are risks in going this route – one being that you will end up seeing your rate rise. But the benefit of getting an ARM is that you will usually be able to get a lower interest rate initially. And if you’re buying a first-time home, or a home that you don’t plan to stay in for many years, then an adjustable rate mortgage could make a lot of sense and result in interest rate savings.
There is a lot to be gained by getting a low interest rate on your home loan. Follow these tips to make your mortgage as affordable as possible.