Getting the Lowest Interest Rate

Shopping around for home loans is just one of many strategies you can use to find a low-interest mortgage. Get tips on how to find the lowest interest rate possible here.

Work on Your Credit

To mortgage lenders, your credit report and credit score indicate the likelihood that you will pay back your loan on time and as agreed. Lenders reward borrowers with good credit scores with the lowest interest rates because these borrowers represent the least amount of risk. Your credit score is based on the information revealed in your credit report, which is a record of your past and present financial obligations. One factor lenders pay especially close attention to when issuing home loans is whether the borrower has made any late payments on a mortgage loan in the past year or two. Borrowers with existing mortgages should be aware of this fact. If you have derogatory items on your credit report, make sure you're honest with your lender from the start. The information will surface eventually, so it's better to deal with it up front. On the other hand, if your credit report has positive features, such as a long credit history or steady employment, it will help you qualify for the best home mortgage loans.

Shop for the Best Rates

Whether you use our site or decide to solicit lenders individually, you should obtain multiple quotes on home loans in order to find the best rate. Get a rate quote and a Good Faith Estimate (GFE) from each lender to compare the costs of each home loan. If you're looking for an adjustable-rate home loan, be sure to compare apples to apples. In other words, compare loans that rely on the same index and have the same terms.

Pay More Points

Most lenders allow you to buy down the interest rates of home loans by purchasing points. The more points you pay, the lower the rate of your home loan will be. Points are paid up front and are expressed as a percentage of the total mortgage loan. For example, one point equals one percent of the mortgage's principal. To determine how many points you should pay, you need to figure out how long it will take you to recoup the costs of buying points. To do this, multiply the number of points you purchase by the principal of your home loan, then divide that amount by how much you save on your monthly payment with a lower interest rate.

Request a Rate Lock

Home loan interest rates can fluctuate on a daily basis, which means your rate could change while your loan is being processed. To avoid costly interest rate fluctuations on home loans, ask your lender for a rate lock. By doing so, you will lock in the rate you were offered originally. Rate locks usually last for 30-60 days.