You have found a residential property and want to make it your home. Before you jump at the first mortgage loan offer that comes your way, it is important to compare the rates and other factors that will impact the amount of the mortgage payments and the total that you eventually pay. A number of factors must be considered as part of that mortgage rates comparison, so keep them in mind as you evaluate the merits of each financing possibility. Here are some tips about what to consider and how they make a difference to the rates you are offered.
One of the first factors to consider is your current credit score. Simply put, higher credit scores increase the odds of being offered more competitive mortgage rates. The scores tell lenders what sort of risk is involved with lending you money. If your scores are higher, that is a strong indicator that you are likely to repay the mortgage on time. While a lower score may motivate some lenders to turn you down flat, there are bad credit lenders who may consider that score less of an issue. If you have a reasonable and consistent amount of income along with meeting a few other qualifications, you are still likely to receive an offer or two. Do not be surprised if the mortgage rates are lower than you expected; even among bad credit lenders there is some competition.
Another aspect that will impact the rates you are offered is whether to go with a fixed or variable rate mortgage. You may hear the variable rate mortgage referred to as a floating rate mortgage. This simply means the mortgage comes with a fixed rate for a determined number of years; after that, the rate may adjust or vary from time to time. One of the most practical ways to compare these offers is to project how much you will pay over the life of the mortgage. That is easy to do with a fixed rate, but may be harder with the variable or floating rate. Learn what professionals anticipate will happen with average lending rates during the time when the mortgage would be in effect. The upward or downward movement of the rate would impact the amount of interest that you pay once the fixed term is over. There is no one right answer when it comes to going with a fixed or variable rate. Focus on offers that seem to be right for you, based on the information that you are able to collect at this time.
You may not know it, but the amount you can put down on the home does more than lower the amount that has to be financed. It can also have some impact on the interest rates that different lenders are willing to extend. The reason for this can be summed up in one word: risk. Since your credit is not the best, you already pose something of a risk to lenders. One way to mitigate that risk is to offer a greater deposit or down payment toward the property purchase price. This translates into a lower amount to be financed. Why does this matter? If the amount you need to borrow is well below the current market value of that property, lenders are more likely to recoup their investment even if you were to default on the loan at a later date. Thanks to less risk, some lenders will entertain the notion of providing financing with lower interest rates than they would offer otherwise.
The mortgage term or duration is also something that will impact interest rates. This also goes back to risk. If you finance for 30 years, there is a longer time span in which you could default on the balance owed. By contrast, there is less time involved if you finance for 15 years. For your part, you are likely to save even if the interest rates offered by various lenders are almost identical. Finance for a shorter term and you end up paying less interest. The thing to remember is that you do not have to accept the first offer that comes your way. Even if your credit is not that great, be willing to look around and compare terms as well as rates. You may find a better deal than you thought any lender would offer.