How to Get a Low Mortgage Rate for Beginners

A low mortgage rate is what everyone wants when they’re financing to buy a home. However, getting the best mortgage rate takes a lot of financial planning and hard work. It’s not just about selecting the right lender and terms. Much of it relies on your buying property and your financial history. A mortgage calculator can give you a glimpse into what you can afford.

Here is a beginner’s guide on how to get a low mortgage rate:

Lift Your Credit Score

Lenders calculate your mortgage rate based on credit score, among other factors. As you’re saving for a down mortgage payment, you also want to be working on your credit score. Build it up as strong as you can. A healthy credit score will be beneficial for your mortgages.

Even if your finances are great, if your credit score is bad, it will have an effect. This may involve discussing with a financial planner how to clear away existing debts and strategies you can employ to boost your credit score quickly and effectively.

Establish Long-Term Employment

Lenders want to see your income is stable. Have at least two consecutive years of steady income and employment. A lender will want to verify your income, so be prepared to submit the requested documents. If your earnings have gone down or there are gaps in your employment, wait to purchase a home if you can.

You can expect a higher mortgage rate and more hoops to jump through if self-employed. Your employment situation will be something to consider if securing a low mortgage rate is a priority.

Improve Your Debt-To-Income Ratio

Just like a credit score, your debt-to-income ratio matters a great deal. You are more likely to meet your mortgage obligations when carrying less debt. The same can be said the higher your income is. Two ways to improve your debt-to-income ratio are to increase your work income or lower your debt. Do both, and you’ll find yourself in a prime position to get a low mortgage.

Boost Your Down-Payment

Higher down payment will generally equate to a better mortgage rate. This is due to a lender assuming less risk. A considerable down payment should be considered in the 10-20% range, although the higher, the better. For example, a 30% down payment can drop your mortgage rate by 0.5%.

Another easy way to boost your down payment is to buy less expensive property. The more money down, the more responsibility that comes with that to make your monthly mortgage payments.

Short-Term Mortgage Term

A short-term mortgage will come with a lower interest rate. This is, again, due to less risk. However, you will need to be prepared to put a larger amount of principal repaid with each payment. If you aren’t ready for that and can’t legitimately make it work, you’re setting yourself up for failure.

This will involve taking a strong look at your budget and disposable income and calculating what’s best. However, short-term sacrifice with a short-term mortgage will save money in the long run.

Variable Rate vs Fixed Rate Mortgage

Interest rates aren’t always where you like them to be. What’s a low mortgage rate today could be lower next year. When deciding on a mortgage, you can lock in a mortgage rate – that’s a fixed-rate mortgage – or opt for a variable-rate mortgage where the mortgage rate will change whenever the prime lending rate set by your lender does.

The disadvantage of a variable-rate mortgage is that it could increase your mortgage rate if the lending rate increases. If there’s evidence suggesting interest rates are likely to go down. However, a variable rate mortgage might seem attractive.

Shop Around to Different Lenders

Lenders are under no obligation to offer you their lowest mortgage rate possible. To find a better interest rate, it can be worth the effort to shop around with different brokers, local credit unions, and lenders. Do your research. It could save you tens of thousands of dollars throughout your mortgage, so speak with at least two or three lenders before deciding who to partner with.

Use a Mortgage Calculator

A mortgage calculator allows you to map out hypotheticals in perpetuity. You can create different scenarios and test to see how to get the lowest mortgage rate for you according to your circumstances. You can adjust the mortgage term, adjust the down payment, modify the property value, and more. You can develop your strategies and build your knowledge base on what’s possible for a mortgage rate long before you want up to a lender.

Be Open to Refinancing

You can refinance a mortgage. If interest rates have fallen since you first got your mortgage, if you’re in a better financial situation, or if your credit score has improved, you may find that refinancing will get you a better mortgage rate and help you pay less. Refinancing isn’t something you can make happen today if you’re looking into your first mortgage.

However, know that it’s possible for the future and be aware of any fees that may come with that. The option could allow you to secure a mortgage today, knowing that, if all goes as you intend, you may be able to nab a lower mortgage rate in the future.

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