While getting the best possible mortgage rate is something we all aspire to get often times it proves to be so elusive that it seems that the planets would have to align before you were able to lock it down. While we can’t promise that you will get the best rate ever, we can give you some information that should allow you to get the best rate possible.
In the previous article we discussed what IPAC stood for and what it meant in relation to a mortgage rate. In many ways your IPAC helps to decide the available mortgage rates offered to you and continually factors in. Here are a few strategies for securing a low mortgage rate:
Pay Off Debt
While it may not be feasible to catch up with every account or close any of them it can be helpful to pay off any debt you may have, even if looking for a mortgage is far off. Paying now and continuing payments will show as a new streak of financial responsibility.
Higher Down Payment
Making a higher down payment during closing will allow you to get an even lower rate. As the down payment lowers the total amount the lender needs to give you it will also lower the interest payment as less money is borrowed so your payments every month go to more of the total amount.
Prepaid Interest Points
You can also buy your rate to a lower point by pre-paying interest at closing. This prepaid interest is called a mortgage point. One point is equal to 1% of the loan amount. Many of the interest rates you see advertised have a certain number of points attached to them.
Prepaying for these interest points will get you a lower rate. The trade-off here is that you have to stay in the home long enough to reach a break-even point where you save money. If buying two points on a $250,000 mortgage (two points equals $5,000) saved you $300 per month on your mortgage payment, you’d have to stay in the home 17 months to break even. If you plan on staying in the house for a while, though, it’s a good way to save money.