There Is Probably A Better Mortgage Rate Out There For You
1. Increase Your FICO By One Point
Mortgage pricing for most products is done in tiers. For example, there’s a rate for applicants with FICO scores between 620 and 639, a better rate for those in the 639 to 660 range, and so on.
Depending on your current score, adding between one and 19 points can move you into a better group, deserving a better interest rate.
Fannie Mae provides a handy chart called the Loan Level Pricing Adjustment Matrix, or LLPA. It shows that a low credit score can reduce charges on your mortgage.
Moving up a tier, in many cases, saves borrowers about 0.5 percent in loan fees. That’s enough to knock about .125 percent off your mortgage rate.
Moving up two tiers (20 to 39 points to your FICO), should drop your rate by about .25 percent.
2. Get At least 4 Mortgage Rate Quotes
Several studies of mortgage shoppers have concluded that there are many borrowers leaving a lot of money on the table when they apply for home loans.
For instance, researchers at Stanford University discovered that by comparing four mortgage quotes instead of just one or two, shoppers could save a median $2,664 on a $200,000 mortgage. That’s over one percent of the loan amount — enough to buy yourself a .25 percent lower mortgage rate.
3. Close Your Loan Quickly
Your mortgage rate is affected by your lock period. For instance, below are points you would pay, according to one lender’s real rate sheet as of this writing. Lower rates are available for shorter lock periods.
Closing your loan in 15 days instead of 60 can cut your interest rate by about 0.125 percent.
That could save you $20 per month on a $350,000 loan.
How do you get yourself a shorter lock period? By having all the information and documentation your lender needs upfront. The less back-and-forth between you, your loan officer and your underwriter, the faster your mortgage can close. And the faster the close, the shorter the lock.
4. Choose The Right Product
You can lower your rate by reducing the length of your loan’s fixed period. Data from the National Association of Realtors (NAR) indicate that most people don’t need 30-year fixed-rate home loan, because they don’t keep their property that long.
The NAR says, “Typically, the older the home seller, the longer the tenure in their home has been—this is a factor in fewer sellers who had to stall the sale of their home. Gen Y typically owned their home for five years while Older Boomers and the Silent Generation owned their homes for 13 years before selling.”
If you’re a younger buyer, why pay an approximately one percent higher interest rate, to fix a loan you’re unlike to even need after five years?
There’s a better product for you. It’s called a hybrid ARM. This loan combines the characteristics of an adjustable rate mortgage with those of a fixed-rate home loan.
You can choose an interest rate and term to suit your future plans. The start rate can be fixed for three, five, seven or ten years.
Below is a rate sheet from a national lender, as of today’s writing, that shows the difference in interest rates between 3/1, 5/1, 7/1, and 10/1 ARMs.
- 3/1 ARM (fixed for three years): 2.875%*
- 5/1 ARM (fixed for five years): 3.125%
- 7/1 ARM (fixed for seven years): 3.375%
- 10/1 ARM (fixed for ten years): 3.75%
Meanwhile, the 30-year fixed rate loan from that same bank is at 4.25 percent. Switching to any of the above-listed products could knock .50 percent to 1.375 percent off your interest rate. For a $200,000 mortgage, the difference between the 3/1 and the 30-year mortgage payment is $154.09 — A savings of over $5,400 in three years.
Buy Your Rate Down — Or Better Yet, Get The Seller To Do It
One sure way to get a lower interest rate is to pay discount points. “Discount points” are optional fees the borrowers can choose to pay if they want a lower interest rate and payment. Paying discount points only makes sense if you intend to keep your property for some time.
They can also make sense if you can get your seller to cover them when you negotiate your property purchase. Taking $5,000 off the property price may not d0 much, whole using $5,000 to get yourself a lower rate might do more to make your house more affordable.
Here’s a chart showing typical interest rates as of this writing, and what you get down the road by paying more upfront:
The longer you plan to keep your home and your loan, the more sense it makes to buy your mortgage rate down at the outset. If you plan to keep your property only a few years, or if you don’t know what your plans are, you’re probably better off with a loan with fewer out of pocket costs.
What Are Today’s Mortgage Rates?
Current mortgage rates today depend on your credit score. The number of mortgage quotes you get matters as well. The program you choose and the amount you pay for your financing also determine your interest rate. Talk to an experienced loan officer about your needs and priorities, and choose the loan with the best terms and lowest cost for your situation.
*Rates are displayed for comparison purposes only, and may not be currently available.