How to Get the Best Mortgage Rates
Wednesday, January 31, 2018
If you're thinking about buying a new home, you're probably focused on overall budget, how many rooms you want, and where the best school districts are. But if you're not thinking about mortgage rates, you should add it to your list. Your mortgage rate has a big impact on how much you pay each month and over the life of your loan, so it's a number you should definitely pay attention to.
What is a good mortgage rate?
A good rate is anything less than the average rate for your loan type and area. So, if the average rate for a 30-year fixed rate mortgage in South Carolina is 4 percent and your lender offers you a 4 percent rate, then you could say you were getting an average rate. Anything below 4 percent could be considered good—the lower the better!
What determines average mortgage rates?
Your lender doesn’t have the final say on the average mortgage rate, those rates are set by the secondary mortgage loan market. When you get a loan from your lender, they would normally have to wait 15-30 years to get their money back from you. But in order to lend to other people, they need that money ASAP. So, they will sell your mortgage to bigger lenders like Fannie Mae and Freddie Mac on the secondary market in order to get their money back right away and keep lending to other people who want to buy a home.
If that’s not confusing enough, you might notice that the rate in South Carolina is slightly different than the national average. The national average is set as a baseline, but then that number is tweaked even further in response to things going on in each state. So if your state is seeing a lot of foreclosures and unemployment, you’ll likely see that reflected in your average mortgage rate. But if your state is doing great compared with others in the country, you’ll benefit from slightly lower rates.
How is your individual rate determined?
National and state average interest rates are just that—average. But at the end of the day, you're an individual and your lender is going to want to look at the whole picture of your financial health to decide what your interest rate should be. So what makes the mortgage rate your lender offers you different than the one they offer another homebuyer?
Your credit score shows your lender how successful you've been at paying back loans in the past. Some things that might affect this score are your credit card payments, your car loan, and even your student loans.
If you look at any mortgage rate table, you'll notice that the average interest rates are different for each type of mortgage loan. A 15-year fixed rate loan will usually get you a lower rate than a 30-year, but remember that it's a tradeoff. If you go with a 15-year fixed rate mortgage, your interest rate will be lower, but your monthly mortgage payment will be higher, so be sure to choose based on the whole picture instead of just the mortgage rate.
Most lenders like to see a 20 percent down payment on a mortgage loan. If you can put that amount down, it shows you're more financially secure and a lower risk when it comes to borrowing money.
What can you do to improve your rate?
One of the best ways to improve your rates is to improve your credit score and save for a bigger down payment. It's not a quick-fix solution and likely means you'll need to delay buying your home, but it will help you form good financial habits and put you in a stronger position when you do eventually buy your house.
If you're still not happy with your interest rate, you can always shop around for different lenders.
Working with a credit union, like SAFE, is a great way to get a lower interest rate. Credit unions are non-profit and member-owned, which means they're passing the money they make back to the members in the form of lower interest rates and annual dividends instead of paying that money out to stockholders.
Ready to find your rate?