Whether you are buying your first property, house, townhouse, or condo, or looking to refinance or renovate the property you already have, you want to make sure that you receive the best interest rate available to you. It may come as a surprise, but the path toward good rates begins long before you ever begin looking at real estate and evaluating your borrowing options.
The first step toward getting the best possible rate is maintaining a good, clean credit history. From the time you accept that first credit card, cell phone contract, or car lease, you are making a name for yourself by way of FICO scores. Every lender who considers allowing you to borrow money for a future loan will be taking a careful look at your record to determine whether or not you pose a risk of non-payment (or late payment), so it’s very important to keep that record clean!
By the same token, it is also important to take part in some lending so that you can begin to establish a credit rating. If you have never before borrowed money or contracted for a service, you have no way of building your credit -- and lenders will not be eager to work with you. In order to get the best rates, you must have shown yourself to be a financially reliable person.
Once you have established a credit rating -- for better or worse -- that part of your journey is over. However, there is still more you can do to secure a great interest rate on your home loan or line of credit.
Though most mortgages are designed to be paid off over a period of thirty years, you may want to consider a shorter-term situation. Ten, fifteen, and twenty year options are also available, and generally, the shorter the term, the better your rates will be. Of course, you must consider what you can reasonably afford -- a shorter loan will have higher payments despite the lower interest -- but more of your money will be going toward the principal, or portion of the property that you actually own.
Closing costs also influence your mortgage rate, so you may want to consider paying those down and avoiding common situations like wrapping those costs into the end of the loan. Most loans allow you to pay off points at closing -- which is essentially paying some of the interest up front in order to secure a better rate. Additionally, you may want to make a more sizable down payment to decrease how much money you must borrow overall.
If you are considering options to refinance a current loan for a better rate, it is important that you really check into the details of your plan to make sure that your new interest isn’t going to cost you in the long run. Closing costs and others fees that can quickly get wrapped up into the back end, a few thousand dollars extra that you decide to borrow at the time of the refinance, and other hidden fees can make a once-profitable deal into a money pit very easily. In fact, though refinancing can be a great way to reduce your monthly costs, doing it too often is very costly! Check with one of our specialists to make sure that your decision will benefit your financial future.