Your mortgage rate can make a huge difference to the amount of money you end up spending on your home over the life of your loan. Getting a great rate isn’t just about choosing the right bank (although that helps too) – it comes down to a series of actions and choices you make before you’ve even applied. That might sound worrying, but the good news is there are things you can do to lower your rate in the long-term.
Tie up any loose ends
If you have always been smart with money, this is where it’s likely to pay off in a big way – your credit score is a significant determinant as to the size of your loan and the rate of interest at which it’s offered. People with strong credit scores and a history of paying off smaller loans (particularly credit cards) promptly are typically offered a lower interest rate than those with weaker reputations. Credit scores aren’t the only piece of history likely to be examined as the bank will often check work and residency history, which means it’s worth checking over your information before meeting with a broker.
Grow your deposit
There’s no disputing the fact that lenders love a buyer who has a solid deposit ready to go; it significantly decreases the risk involved in lending a large sum of money. It’s unlikely you’ll manage to negotiate the best rate possible without some cash behind you, and the best mortgage rates are typically secured by those with more than twenty per cent of the home’s sale price in the bank.
Independent mortgage brokers can help you figure out how much money you can borrow, as long as you show them all the pertinent information you can. Your broker will investigate your earnings, the deposit you’ve saved, and the price on the property you’re interested in, and give you the best advice for your situation.
Search and compare lenders
Unfortunately, banks are not obligated to give you the best mortgage rate possible simply because you ask them. That means if you’re not satisfied with the rate you’ve been offered, one of the best things you can do is shop around. Fortunately, it’s easy to compare rates offered by multiple lenders before you make any hard and fast decisions. If you’re lucky enough to have a strong history behind you, don’t be afraid to use rates as tools of negotiation – the life of the loan could be a long one, and the right choice of the lender could save you serious cash.
Apply for a government home loan
Low-rate home loans like FHA are great options for those who are eligible and automatically equate to a significantly reduced mortgage rate as well as a lower threshold on down payments. As it turns out, a great credit score can help you get around many obstacles, including a high down-payment threshold and sky-rocketing interest rates. For those who don’t qualify for an FHA loan, 15-year fixed-rate loans tend to offer the next-best rate of interest.
Find stable employment
Employment is a hugely important factor weighing into the interest rate offer you receive from the bank. Those who are able to hold down a steady job are a safe bet in the eyes of the bank, and far more likely to get their loan application approved as a result. Having been in the same job for several years will also work in your favour when the time comes to negotiate a mortgage rate, particularly if your pattern of earnings has increased.
Get your cash reserves in order
It’s not enough for the bank to know that you have a stable job and regular income – you might also need to pull cash reserves together in order to secure the mortgage rate of your dreams. The best-case scenario would involve a bank account with enough funds to make several months’ worth of mortgage payments, but if that isn’t feasible, the minimum requirement usually sits around two months’ worth of payments. Think of it like a bond payment from your renting days, only this time, it will all go towards the end goal of owning your home.