When buying a home, getting the best interest rate on your mortgage is crucial. Even a small difference in interest rates can significantly impact your monthly mortgage payment and the total amount you end up paying over the life of your loan. This article will provide useful tips to help you secure the best interest rate on your mortgage.
1. Improve Your Credit Score
Your credit score is one of the most important factors lenders consider when determining your interest rate. A higher credit score usually means a lower interest rate. Therefore, it’s essential to ensure your credit score is as high as possible before applying for a mortgage. You can improve your credit score by paying down debts, making timely payments, and avoiding opening new credit accounts.
2. Save for a Larger Down Payment
A larger down payment can also help you secure a better interest rate on your mortgage. Lenders see borrowers who put more money down as less risky and may offer them lower interest rates. Saving for a larger down payment can reduce your monthly mortgage and help you avoid paying private mortgage insurance (PMI).
3. Shop Around for the Best Rates
Don’t settle for the first lender that offers you a mortgage. Instead, shop around and compare rates from different lenders. Doing your research can help you find the best interest rate and save you money over the life of your loan. You can use online comparison tools to compare rates from different lenders.
4. Consider a Shorter Loan Term
Shorter loan terms usually come with lower interest rates. While a 30-year mortgage may seem more affordable because of the lower monthly payments, it’ll cost you more in interest over the life of the loan. A 15-year mortgage, on the other hand, can save you thousands of dollars in interest and help you pay off your home faster.
5. Improve Your Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is another factor that lenders consider when determining your interest rate. Your DTI ratio is the percentage of your monthly income for paying debts. A lower DTI ratio usually means a lower interest rate. You can improve your DTI ratio by paying debts or increasing your income.
6. Consider Paying Points
Paying points is a way to lower your interest rate by pre-paying interest upfront. Each point is equal to one percent of your mortgage amount. For example, if you have a $200,000 mortgage, one point would cost you $2,000. Paying points can be a good option if you plan to stay in your home for a long time.
7. Get Pre-Approved for a Mortgage
Getting pre-approved for a mortgage can give you an idea of the interest rate you’re likely to receive. Pre-approval involves providing your lender with your financial information, such as your credit score, income, and debts. Your lender will then give you a pre-approval letter stating the maximum amount you can borrow and the interest rate you qualify for.
Securing the best interest rate on your mortgage can help you save money over the life of your loan. Improving your credit score, saving for a larger down payment, shopping around for the best rates, considering a shorter loan term, improving your debt-to-income ratio, paying points, and getting pre-approved for a mortgage are all effective ways to get the best interest rate. By following these tips, you can be sure to get the best mortgage deal possible.
Ottawa Mortgage Services provides mortgage agent services for first-time homebuyers, self-employed individuals, commercial clients, and more. We also help clients with refinancing, pre-approvals, and debt consolidation. If you’re a first-time home buyer in Ottawa, we can help you find the right mortgage in the right neighbourhood. Get in touch with us today and let us know how we can help!