How to Get a Mortgage with a Competitive Interest Rate

Mortgages aren’t one-size-fits-all financial tools. You’ll get to choose from different types of home loans with different terms. The kind of mortgage you choose will influence your interest rate, monthly payments, and long-term costs. Here’s what you need to know to find a mortgage that will work for you.

Your Mortgage Type Will Affect Your Interest Rate

If you take out a fixed-rate mortgage, your interest rate won’t change, and neither will the amount you’ll pay for principal and interest every month. If you’re looking for predictability, a fixed-rate loan can make sense for you.

With an adjustable-rate mortgage, you’ll start out with a fixed interest rate. After the fixed-rate period ends, your interest rate will change based on market conditions. Your interest rate (and your monthly payments) can go up or down. If your rate rises, you might struggle to cover your monthly payments.

A Shorter Loan Term Can Save You Money on Interest

Most mortgages have terms of 15 or 30 years. As far as a lender is concerned, a borrower who takes out a 30-year loan is riskier than someone who takes out a mortgage with a 15-year term. This is why mortgages with shorter repayment periods generally have lower interest rates.

If you choose a loan with a shorter term, you’ll have higher monthly payments because you’ll be paying off the principal in a shorter amount of time. You’ll pay less in interest every month, and you’ll pay less in total interest over the life of the mortgage.

A Large Down Payment Can Score You a Lower Interest Rate

Most lenders will require you to make a down payment, but you have a lot of leeway when it comes to its size. If you’re strapped for cash, a low down payment can be appealing, but there are tradeoffs.

Putting down a small percentage of the purchase price will make a lender consider you a riskier borrower. It will most likely charge you a higher interest rate. A bigger down payment can help you qualify for a loan with a lower interest rate.

Discount Points Can Save You Money in the Long Run

Some lenders will give you the option to purchase discount points (also known as mortgage points). If you do, you’ll pay a fee at closing in exchange for a lower interest rate. Your upfront costs will be higher, but you’ll have lower monthly payments for as long as you have the loan, and you’ll pay less in total interest.

Improving Your Credit Can Help You Save on Interest

A lender will consider your credit scores when setting your interest rate. If your credit’s not in good shape, that doesn’t necessarily mean that you won’t be able to get a mortgage, but you might only qualify for a loan with a higher interest rate.

Boosting your credit scores can help you secure a mortgage with a lower interest rate and save money every month. Learn more about how your credit can affect your interest rate and how to improve your credit.

Become an Informed Homebuyer

When it comes to buying a house, mistakes can be expensive. If you educate yourself first, you’ll be able to make decisions that are in your best interest and avoid common problems.

In the First-Time Homebuyer Masterclass, you’ll learn more about mortgages and other critical subjects, like inspections and homeowners insurance. Enroll today.

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