Nobody wants to pay a high interest rate on their home loan, and following a few simple tips will allow you to drastically reduce how much you pay for yours. Most people rush into getting a home loan because they are excited to buy a house, but this is a horrible idea for many reasons. Those who take their time and do the necessary research usually end up getting the best rates. The interest alone on your home loan can be quite substantial, which is all the more reason to do your homework beforehand.
Look at Your Credit
First you will need to know what your credit is like, because it will play an important role in determining what your interest rate will be like. The higher your credit rating is, the less you will need to pay on your home loan. If you have a low credit score, you might want to think about taking some time to improve it before applying. While you might not want to wait, doing so could save you hundreds or even thousands of dollars over the years. You can get a free copy of your credit report, and doing so will give you a clear picture of what your credit is like overall.
Determine Your Loan Term
The length of your home loan will be something else to think carefully about, as it will have an impact on the amount of interest you pay. Opting for a shorter loan term will mean getting a better interest rate, but it will also mean a higher principle payment each month. You will definitely want to take a long hard look at your finances before deciding what kind of term to get. The last thing you should do is to choose a loan term that will ultimately make it difficult for you to pay back the money you owe on time.
Compare Your Options Online
Anyone who is interested in getting a home loan will need to spend some time comparing deals on the web. This research can go a long way towards helping you decrease the amount of money you spend on your loan. You will want to use certain websites that allow you to get quotes and compare loans from different lenders so you can get the information you need efficiently. You do not want to get a home loan before taking the time to do this.
Pay Off Any Existing Debt
One of the best things that you can do to get a reasonable interest rate for your mortgage is to pay off any existing debt that you might have. No lender is going to want to give you one of these loans if you are still paying off other debt. This is something that can definitely prevent you from getting a good interest rate or even getting approved. It might take a while to pay down your other debt, but it will ultimately be well worth it in the end.
Make a Good Size Down Payment
The size of the down payment you make on your new home will directly affect your interest rate. It is recommended that you pay down at least 20% to get an ideal rate, but more is always better. You obviously don’t want to put down a large deposit than you can afford to, but you also don’t want to be cheap. There are “no money down” home loans available, but they usually come with outrageously high interest rates. If you want to have an easier time paying off your loan, it is important to pay as much as you can up front.
Ask About the Fees
It is important to shop around for the best deal on a home loan, but you will need to ask each lender about the fees they charge as well. Some lenders combine all of the fees they charge into the preparation fee, which makes it crucial for you to get this information when doing your research. The advertised rate isn’t necessarily the sum total of what you are going to pay, so you’ll need to get these details before deciding on a certain lender.
Think About How Long You’ll be in the House
You should also consider how long you plan to be in the house that you are going to buy, as this will affect the type of interest rate you should get. Adjustable rate mortgages start out low and increase over a pre-determined period of time. A lot of homeowners get ARMs and then sell their home before their rate starts to go up. If you are only planning on being in your home a couple of years or ago, this could be the perfect option.
Talk to People You Know
Another great way to ensure that you don’t get a raw deal on your interest rate is by talking to people who have bought a house in the past. You can learn a lot from other people’s experiences, so you should make a point of doing this. Ask some of the people closest to you who have financed a home what their rates are/were and what they would do differently if they could go back. This could save you from a lot of frustration and headaches later on once in you are in your new home.
Consider a Balloon Mortgage
A balloon mortgage can be a good idea for certain people, but you will need to take a close look at your own financial situation before making a decision. These mortgages are known for having low fixed interest rates for a relatively short period of time (usually around 5-10 years). A balloon mortgage could help you to get the loan you need without spending a ton of money on interest. You will, however, want to make a point of thinking about how short of a term you are comfortable with before making up your mind either way.