Lowest Mortgage Rates

When searching for a loan, getting the lowest mortgage rates involves more than simply shopping around with different lenders. There are other factors involved when lenders decide what sort of interest rate to offer a potential borrower.

Your Credit History Counts

If you have ever applied for a mortgage loan you are familiar with the speed by which the lender will pull a credit report. Lenders are quite interested in an applicant’s credit report, and rightfully so. Your credit report gives lenders an accurate representation of your credit history while also giving them an idea of your likelihood of paying back the loan in a prompt manner. A credit report peppered with late payments and maxed-out credit lines tells the story of a person who is not necessarily a good credit risk. Furthermore, there are lenders who use an applicant’s credit rating in order to not only decide whether or not to approve the application, but also what interest rate to offer. The lowest mortgage rates go to the applicants with the best credit scores.

What should you do if your credit rating is less than perfect and you want to apply for a mortgage loan? Give yourself some time to get your credit in order before applying by:

• Checking your credit report for errors
• Bringing all delinquent accounts current
• Bringing outstanding balances down
• Making all payments on time
• Not opening any new accounts

What You See is What You Get

Not all lenders use credit ratings when deciding on an interest rate. Many lenders instead have one flat rate they offer, thereby making every approved applicant receive the same interest rate. For example, if one approved applicant has a dazzling credit report with a sky-high rating and another approved applicant barely gets approved by the skin of his teeth, they will both receive the same interest rate. When inquiring about interest rates it is a good idea to ask the representative if the advertised rate is the flat rate everyone receives, or if you might instead wind up being offered a higher rate if your credit rating isn’t spectacular.

The Terms of the Loan Counts

Commercials for mortgage lenders often declare amazingly low rates for loans, but these sorts of advertisements will often have small print below the interest rates which is impossible to read while viewing the ad. In most cases, the small print states that the lowest mortgage rates offered by the lender are for adjustable rate mortgages (ARMs). You can generally expect three things when it comes to mortgage loan rates:

• ARMs have the lowest interest rates, but only for a short period of time (usually up to five years).
• Fixed rate mortgage loans have higher interest rates but the rates remain constant.
• VA and FHA loans do not have the same interest rates as conventional loans.

For these reasons, it is important to not get too excited about an incredibly low interest rate advertised by a lender. Unless you want to wind up with an adjustable rate mortgage you are probably going to pay a higher interest rate than the one you see on the commercial.

Down payments will also affect some interest rates. If you do not make at least a 20% down payment on your mortgage loan you may not be offered the lowest mortgage rates.

Caution: Lowest Mortgage Rates Aren’t Perfect

If you manage to find a lender who has fantastic interest rates, be sure to study the loan documents very carefully before signing. You may find that the lender has tacked on a mortgage life insurance policy, outright mortgage insurance, or another sort of policy which you may not need. You also want to make sure the words “balloon payment” are nowhere in the documents, since a balloon payment should be avoided if at all possible. A balloon payment is a loan which is amortized over a long period (for example, 30 years) but instead of going the full term payment is suddenly due in full earlier (for example, at 10 years).

Don’t be intimidated by the tedious nature of finding the lowest mortgage rates. After all, finding the best rate can save you thousands upon thousands of dollars over the life of the loan.