How to Lower Your Mortgage Interest Rates

How to Lower Your Mortgage Interest Rates

In today’s tough economy, with unemployment soaring to new heights, it’s more important than ever to cut costs. And the most significant cost most of of us have are our monthly mortgage bills.
A whole host of factors determine the monthly mortgage payment homeowners pay. But the most important is the loan’s mortgage interest rate.

The lower a homeowner’s interest rate, the lower that owner’s mortgage payment will be each month. And homeowners shouldn’t think that even a one-percent difference in interest rate isn’t significant. On a home with a 30-year fixed-rate mortgage loan of $180,000, an interest rate of 7 percent will equal a monthly mortgage payment of $1,97.54. If that same loan came with an interest rate of 6 percent, the payment would fall to $1,079.19, a monthly savings of more than $118.

Homeowners can reduce their interest rates by refinancing, of course. But that takes a lot of time, paperwork and money. The best time for homeowners to guarantee a low interest rate is before they even apply for their mortgage loan.

Make the lenders love you

Several factors go into determining a borrower’s mortgage interest rate. The first, and most important, is the size of the down payment that borrowers can provide at closing.

In the old days, the standard down payment was usually 20 percent of a home’s final purchase price. That gradually changed as mortgage lenders began offering a variety of low-down or no-down-payment loans. Today, though, the industry is reverting more toward the older days, as lenders are seeking more dollars upfront from borrowers.

Borrowers should put down as much money as they can, anyway. This reduces the size of their mortgage loan and helps guarantee a lower interest rate.

The length of a mortgage loan is another factor in determining a loan’s interest rate. Those borrowers who can afford higher monthly payments will get a lower interest rate if they take out a 15-year fixed-rate loan instead of the more common 30-year version.

Finally, borrowers’ financial habits and history are key, too. Lenders like to work with borrowers who have a long history of paying their bills on time. They also want borrowers with low levels of debt and steady sources of income. Borrowers who have all this, and the stellar credit score to prove it, will qualify for lower interest rates.

The key to qualifying for the best mortgage interest rate, then, is simple: Take the steps before you apply for a loan. It makes more sense to get that better rate upfront than to fight for it later in a costly and time-consuming refinance.