Your mortgage is a big investment that enables you to make one of the most important purchases of your life. But it also can easily be one of the most expensive. Just because you need a mortgage to buy your dream home doesn’t mean there’s no room for negotiation to get the best possible price. Here’s how to get a lower interest rate on your mortgage in Boston.
KEEP A GOOD CREDIT SCORE
The better your credit score, the better your interest rates. If you have a lower credit score, lenders see you as more of a risk and charge you a higher interest rate to protect their investment.
Before you begin shopping for a home, get as much of your consumer and interest-bearing debt paid down as possible. Make sure any student, auto, and personal loans are current and get your credit card balances are as low as you can get them.
By law, every adult in America is allowed a free credit report each year from each of the three reporting bureaus – Experian, Equifax, and TransUnion. In the year leading up to your planned purchase, request a report quarterly from one of the three reporting agencies to see how you fare. It’s a good idea to know your credit score, and to check your credit report at least annually.
SHOP AROUND TO DIFFERENT LENDERS
Sometimes, just shopping around at banks, credit unions, and mortgage lenders can help you get a lower interest rate. Shopping around is easier now than it ever was before thanks to the availability of online banking information.
If you’ve received a quote from a bank or mortgage lender, consider checking out a credit union. The interest rates at credit unions tend to be a little lower than with other lenders because they have lower fees than traditional banks. They’re also more apt to work with you if you have a below-average credit history.
Mortgage brokers are also great resources, since it’s to their advantage to bring the best rates and loan products your way in hopes of closing your loan and receiving a commission.
PUT MORE MONEY DOWN
A great way to get a nice long-term payoff is to put the financial pain up front and pay more down on your mortgage.
If you are able to swing more than the recommended down payment, your lender may view you as a safer investment and give you a break on the interest rate. Even an extra couple percentage points of the total loan price can be helpful.
For larger loans, putting down as much as possible gets you out of the “jumbo loan” category (over $510,400 for 2020 in many Massachusetts counties). Jumbo loans are seen by many banks to carry more risk and, as a result, get higher interest rates.
SHORTEN YOUR LOAN TERM
Thirty-year mortgages are the traditional way most Americans purchase their homes, as they offer lower monthly payments. However, if you shorten the repayment terms to 20, 15, or even 10 years, you can trade the higher payments to the principal to get a lower interest rate.
This method takes some careful planning and attention to the amount of mortgage you can afford, but the payoff is great for lower interest rates and even freedom from mortgage payments altogether in less time than with a 30-year mortgage.
This method may seem so simple it can’t possibly work, right? But sometimes the key to getting a lower interest rate is to just ask your bank for a lower interest rate.
The worst they can say is, “No,” but using a little courage to ask can really pay off.
If you have an exceptional credit score (800 or more), ask your lender to either match the lower interest rate of a competitor or to just lower your interest rate based on your credit history. Banks want the business of people with exceptional credit scores, and many will do what they need to to keep you from taking your mortgage elsewhere.
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