| Most people who are getting a mortgage believe the | | | | $20,239 in interest and your monthly repayments are |
| number one factor to consider is the interest rate, and | | | | $167 lower. |
| rightly so. Over the average mortgage term (around | | | | Or, let’s say you reduce your mortgage to 15 |
| thirty years) a single percentage point in interest can | | | | years. In this case you pay $2,580 per month and pay |
| mean thousands of dollars more spent on the | | | | a total of $194,447 in interest – and you save a |
| mortgage rather than going into your pocket. | | | | whopping $77,656 in interest. |
| The interest rate on your mortgage is all-important, so | | | | Alternatively, if you reduce the interest rate on the |
| it is definitely worthwhile learning more about how | | | | twenty-year loan by 0.25%, you pay $2,217 per month, |
| interest rates work, and how you can take advantage | | | | and save $10,038 in interest over 20 years. Amazingly, |
| of low interest rates. With that in mind, here are some | | | | reducing your interest rate by just one quarter of a |
| tips that will help you get the lowest mortgage rate. | | | | percent leads to a saving of a little over $10,000. |
| Tip #1: Bargain from a Position of Strength | | | | So what does this mean? Reducing your mortgage |
| If you want to negotiate the most favorable terms for | | | | term is definitely the best way to reduce the amount |
| your mortgage interest rate that you possibly can, it is | | | | of interest you pay over the term of your mortgage. |
| important that you negotiate from a position of | | | | However, to vastly improve your negotiating power, |
| strength. With mortgage terms and conditions relying | | | | you are better off increasing the size of your |
| ever more heavily on risk-based assessment, getting a | | | | down-payment. This way, you can negotiate a lower |
| low interest rate is all about convincing a lender that | | | | interest rate, and even a small reduction leads to big |
| you are a good risk. | | | | savings. |
| For the most part, this means having a good credit | | | | Tip #3: Buy Points and Lock in a Low Rate…Possibly |
| score, stable employment, and a good income-to-debt | | | | When you are in the midst of mortgage negotiations, |
| ratio. What can you do to improve your odds? | | | | there are a couple of optional extra steps you can |
| • Get a copy of your credit report and check for | | | | take to reduce your interest rate, but remember, it is |
| errors that might lower your credit score. Take a look | | | | not always financially prudent to do so. Every case is |
| at this information several months before you plan to | | | | different, so do not assume these steps are inherently |
| apply for mortgages to give you time to fix errors and | | | | beneficial. |
| have your credit rating adjusted accordingly. | | | | • If your lender offers points (most do) you can |
| • When you apply for a mortgage, any debt that | | | | purchase points to reduce your mortgage interest rate. |
| will take longer than six months to pay off will affect | | | | This can be a very good way of saving money over |
| your mortgage eligibility. Before taking out a mortgage | | | | your mortgage term, but it is extremely important to do |
| reduce your long-term debt, and don’t take out any | | | | the math and make sure you are saving more in |
| loans or make large purchases until after you’re | | | | interest than you spend on points. |
| approved. | | | | • If you feel confident (and knowledgeable) enough, |
| Tip#2: Know the Value of your Money | | | | you can try to lock in a low interest rate. This means |
| Before negotiating with a mortgage lender, you should | | | | your lender agrees to lock in your interest rate at a |
| know where your money is best spent. Will you | | | | rate you agree upon, until your mortgage is processed. |
| benefit more from making a large deposit, or from | | | | If interest rates rise, you get to keep the lower rate, |
| buying points to lock in a low interest rate? Should you | | | | but you are still locked into the higher rate if they fall. |
| get a twenty-year mortgage or a thirty-year loan? | | | | Tip #4: Get Pre-approved |
| Example: You borrow $270,000 with a $30,000 | | | | What does pre-approval have to do with getting a |
| deposit at 8% interest over 20 years. Your monthly | | | | lower interest rate? Simple, if you get the mortgage |
| repayments will be $2,258, and you will pay $272,103 in | | | | before you go looking for a house, time is not an issue, |
| interest. | | | | and you can negotiate at your leisure. If you wait till |
| What if you pay a $50,000 deposit? You’ll borrow | | | | you have found the house of your dreams, you are |
| $250,000, for monthly repayments of $2,091 and total | | | | going to feel pressured to get that mortgage ASAP, |
| interest paid of $251,864. The larger deposit saves you | | | | and that leaves you in a poor bargaining position. |