When you’re on the path to owning a home, one thing that you will always question is how to get the best mortgage rate.
Mortgage interest rates play a crucial role in determining your borrowing costs and monthly payments. This guide aims to make it easier for you to understand how the best mortgage rates are determined and how they work.
Let’s dissect the primary elements that influence the best mortgage rates.
1 - Economic Influences
Mortgage rates are heavily influenced by wider economic elements such as inflation, economic growth, and the Federal Reserve’s fiscal policies. When the economy is booming, interest rates tend to rise, and in times of economic hardship, interest rates may decrease.
Currently, you might find that mortgage rates are higher than they’ve been in recent years. This situation is due to the ongoing high inflationary period our nation is experiencing and the Federal Reserve’s strategy to hike rates to keep inflation in check.
2 - Borrower-Specific Variables
Your personal financial standing and the specific details of your loan play a significant role in determining the interest rate you’ll be offered. Lenders consider factors such as credit score, debt-to-income ratio, loan term, loan amount, and the type of loan program you select.
Each mortgage program comes with its own set of guidelines and prerequisites. They all have an unique eligibility criteria and may offer different interest rate options. It’s crucial to thoroughly analyze each program for which you qualify because a program with seemingly low-interest rates might not be as beneficial as it initially appears.
3 - Variables within the loan
Additional factors such as Loan Term, Loan Amount, and even the location of your property will also affect your ability of obtaining the best mortgage rates.
For example, shorter loan terms may result in lower interest rates. However, they usually come with higher payments as a trade-off. Lenders often provide more favorable rates for loans that pose lower associated risks. Most people will get often get the best mortgage rates when getting a 15 year mortgage because the loan will be paid off in a significant shorter amount of time than a 30 year loan.
4 - Adjustable Rate Mortgages
When you are looking for the best mortgage rates, it’s crucial to comprehend that there are different interest rate options including, variable interest rates.
Most people opt in for fixed rates for the entire term, therefore why the 30 year fixed mortgage is the most popular loan available. However, for others, getting an adjustable rates and even interest-only rates may be more beneficial than a standard 30 year fixed rate.
For example, for someone who is only looking to be in the home for no more than 3 or 5 years, a variable rate may make more sense because they can benefit of a better mortgage rate than 30 year fixed.
Remember, the best mortgage rates are not determined by a single factor. They are the result of a complex interplay of economic conditions, borrower-specific factors, and market dynamics.
5 - Buying Points
Buying mortgage points, also known as discount points, is another strategy that can help you secure a lower interest rate on your mortgage.
Essentially, you’re paying upfront to lower your interest rate, which can save you money over the life of the loan. One point typically costs 1% of your mortgage amount and can lower your interest rate by 0.25%. However, the actual reduction can vary based on the lender and current market conditions.
For example:
Assume a $300,000 mortgage with a 6.5% interest rate will have a payment of $1,896.20/month.
But you may opt to pay 1% in discount points or the equivalent of $3,000 (1% x loan amount) to reduce the interest rate to 5.75%. With this new interest rate, your payment would now be $1,750.72 or $145.48 lower than with the rate without discount points.
Buying points to obtain the best mortgage rates is an useful strategy if you plan to stay in your home for a long time as it might take several years to break even from the upfront cost. Therefore, be sure to run the numbers and consult with a mortgage advisor to determine if buying points is a beneficial move for your specific situation.
In Conclusion
To secure the best mortgage rates:
- Maintain a robust credit profile by managing debt responsibly and working on improving your credit score.
- Conduct thorough research and compare offers from multiple lenders to find the best mortgage rates. Alternatively, engage with a mortgage broker who can compare rates on your behalf.
- Consider locking in a rate when you find an offer that matches your financial objectives and goals.
- When getting your mortgage, find out if buying points is a strategy that you should consider.
How we can help you get the best mortgage rates for your home
One of our responsibilities as a fiduciary, wholesale mortgage broker, is to shop for the best mortgage rates with lenders on behalf of our clients. Here at ANDES MORTGAGE LLC, we have relationships with over 30 different lenders who we work with to get our clients the most competitive rates and best loan terms available.
We specialize in helping those looking to purchase or refinance their homes. Our goal is to assist you in finding the best mortgage rates and the loan terms that match your objectives and goals.
Contact us today to learn more about what we can do for you.
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