The upward movement of interest rates on the mortgage loan is worrying many of the borrowers. The average rate of interest is now hovering around 5%, which is up by at least 1% compared to the rates of 2017. The customers seeking the home loan are worried about the bigger holes to their wallets. The experts in the field predict that the trend might continue for some time. Those who are on the verge of finalizing the decision are in a fix. Without the respite soon, some buyers are stunned as to the next step in the present scenario. If you are also one among such potential buyers, you are on the right page. You can take the practically feasible tips to beat the rising mortgage loan interest rate.
Validate Credit Report
Perhaps, your credit score report is not reflecting the true picture. There is a possibility that errors have crept in which you would not have noticed. Surprisingly, the report of the Federal Trade Commission suggests that at least 20% of the consumers reported a minimum of one error in the credit statement. Therefore, it is wiser to go through the credit report meticulously at least once a year. There is no harm in a thorough “scrutiny with a magnifying glass” for any probable errors. In case, if you find any erroneous entries, then dispute the wrong entries with at least three major credit bureaus. After completion of the investigation, the report is validated within 30 days. This would improve your credit score for a better interest rate.
Optimum Credit Utilization
You should know that the interest rate on any loan is based on the FICO score. The FICO score takes into account the credit utilization ratio into account for arriving at the final score. Therefore, the higher the credit utilization ratio, the lower the FICO score and in turn great interest you need to pay. Ideally, you should keep the credit utilization below 20% so that you will stand a better chance for a higher FICO score.
It is a good idea to request the creditor to enhance the credit limit so that the credit utilization ratio would be on the lower side.
Consider Different Options
Common practice is to opt for a 30-year fixed-rate mortgage loan. However, you can demand a lower rate of interest if you are seeking a reduced tenure of say 10 or 15 years fixed rate.
If you are planning to move-in to the new house only after a few years, you can request for an adjustable mortgage rate. Sometimes, such interest rate may come down by 1%.
Generally, the lenders offer you some discount points on the prepaid interest amount which may be in the range of 1 point for 1% of the loan amount.
In case the loan amount is $100,000, the value of one discount point may be equal to $1000. When you prepay the amount of $1000, you are likely to get 1 point discount on the rate of interest which may be equal to 0.25%. Whenever you have some additional funds with you, it is wiser to overpay the mortgage loan to grab the discount points.
If you are planning to stay in the home close to a decade, you can discuss the details with the creditor for more clarity.
Higher Down Payment
You need not to go by the thumb rule of down payment suggested. Even in the case of Federal Housing Administration (FHA) Loans, though the down payment is less than 5%, you can think of a higher down payment. The lower mortgage loan can result in lower Loan to Value ratio. The lower Loan to Value ratio would work in your favor in demanding a decreased interest rate.
This also results in a lower amount of a refund towards the mortgage loan. Thus, you can be free from the debt earlier than otherwise.
Freezing the Rate
When the interest rates are going northwards, it would be prudent to request for “locking” the interest rate. You can avail of the benefit of lower interest rate even if it is a small fraction. The Loan Officer at simplifiloans.com can offer you a sincere advice when to freeze the rate.
Thus, the “fixed rate” of interest can relieve of the avoidable nightmare of increasing rates of interest, which would not affect you.
Compare with Other Lenders
There is a fierce competition in offering you the loan. If you break down the closing cost, you will find that the fee varies between 2 and 5% from a lender to lender. You should, therefore, obtain the loan estimate from multiple creditors like the Simplifi loans and others to compare the concessions or other incentives besides the rate of interest. This would also help you to leverage the negotiations in trimming down the closing costs to your favor.
Do not jump to finalize with the quote you received from the first lender. Collect at least three more loan estimates for a better comparison.
Ultimately, your aim is to finalize the deal with a more competitive rate of interest which would reduce your financial burden.
Simply do not compare the interest rate of one lender vis-à-vis other lenders. Compare the total payment in dollars across the tenure. This presents a better picture as to which creditor is favorable overall.
Porting the Mortgage Loan
If the trend of rising interest rate continues, you can think of switching over to a fixed rate of interest. Check if you are on the variable-rate mortgage or a tracker mortgage, which is periodically tuned with reference to the base index of the regulatory authority. You can protect yourself with the enhanced rates if you “lock the interest rate.” You have the option to exercise at any time during the loan period. The loan officer can throw more light on this point.
Sometimes, porting of the mortgage loan to another lender also might be beneficial. Find out from reliable lenders the feasibility.
In conclusion, you need not to panic if the interest rate is moving upward. You can take a cue from the above tips and avail of the benefits and be immune to the increasing rate of interest on the mortgage loan. You can fulfill your dream of buying a home and also be proud to have availed at the best possible cost of the mortgage loan.