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There are some steps you can take to get low mortgage rates on both a purchase mortgage and a refinance. You may have to rearrange your finances in order to get a low interest rate and perform some research to see what rates are available from different lending institutions. Applying with several different lenders will allow you to negotiate a low mortgage rate by offering your business to the lender with the best loan package.
What You Need to Do
Here is a list of some of the things you may need to do in order to get a low mortgage rate:
- Pay down your current debt balances.
- Bring any past due accounts current.
- Increase your down payment amount.
- Shorten your loan term or use an adjustable-rate mortgage (ARM).
- Apply with multiple lenders.
Step 1--Pay Down Credit Cards and Installment Debt
If you pay down your revolving credit debt, your credit score will increase. Paying off installment loan balances will also cause your credit score to rise. The higher your score, the better your chance of getting a low mortgage rate.
Step 2--Contact Creditors You Are Late in Paying
Delinquent credit not only causes your credit score to drop; it will impact your loan rate. If your credit is severely damaged, you may not qualify for a loan at all.
Contact your creditors and set up a repayment plan that brings your accounts current. You may want to wait to apply for the mortgage loan if you are not going to be able to solve your credit issues in a short amount of time.
Step 3--Reduce the Lender’s Risk
Increasing the amount of your down payment will lower your loan-to-value ratio. The lender may reward you for reducing his risk by giving you a lower interest rate on your mortgage loan.
If you have other assets you can borrow against for additional down payment funds, the lender will have to approve the increase in your overall monthly debt payments before issuing you the loan. Even though you will probably save money on the total amount of finance charges in the long term, your payment amounts may put a strain on your cash flow. Be careful if you choose this option as a way to boost your down payment.
Step 4--Choose the Right Loan Structure
If you are able to afford a higher payment, consider reducing your loan term. The interest rate should be lower, and you will save in finance charges by paying off the loan early.
Another option for getting a low rate is selecting an ARM loan, since these carry a lower interest rate than a fixed product. You may want to choose the ARM based on how long you intend to remain in your home.
Step 5--Check with Different Lenders
Research mortgage rates in your area and online. If you find several lenders you trust who are offering low interest rates, consider applying with all of them so you can compare the different approvals you receive.
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