Practical Tips Towards Getting Lower Mortgage Rates In 2015

When it comes to obtaining the best mortgage rate several factors come into play. The Federal Reserves asset purchases for example can fluctuate mortgage rates as can housing demand in the area you are looking to buy in. There is also the matter of the secondary market for mortgage-backed securities. The secondary market for mortgages is where lenders sell off mortgages to mortgage aggregators (securitizers) and investors and when this happens your interest rate tends to go up. This secondary market is vastly liquid and incredibly large. The buyers tend to be pension funds, insurance companies and hedge funds. The plus side to the secondary mortgage market is that it helps to make mortgages available to all borrowers across geographical locations.

With all these different factors at play how do you get the lowest mortgage interest rate? The simple answer is that the lower your credit risk is the better the rate you will get. If your credit score is poor expect to pay thousands extra in the form of a higher interest rate. Other factors that come into play when figuring out your mortgage rate:

Your income:
If you make more money you can take out a 15 year loan instead of a 30 year loan. Over the long run you will pay less for a 15 year mortgage but higher monthly payments.

Credit score:

If you work on raising your credit score to the next tier prior to obtaining a mortgage you will pay less interest. For example:
660 to 699 tier
700 to 759 tier
760 to 850 tier

Now you may fall below 660 Fico score in which case you would want to work on getting your score up to at least 660 to get a better rate. A score of 700 is not out of reach if you take the steps to get there.

Employment history:
Yes your lender will look at the length of time you have spent at your current job. If it is to low they could jack up your interest rate slightly.

Down payment:

The more you put down on your new home the less principle you will need to borrow, hence you will pay less overall in interest, not only that but you will have equity in your home sooner.

Points:

You can prepay some of the interest on your loan in a system called “points”. One point equals 1% of your mortgage loan which will lower your interest rate by .25 points so paying 4 points can lower your interest rate by 1%. These points are also often tax deductible so they can lower your overall tax burden at the end of the year potentially saving your hundreds if not thousands of dollars between the tax benefits and lower interest rate.

Debt to income ratio:

If you have too much debt you will be viewed as a risk to any lender. Your debt to income should be less than 43% if you want to qualify for the best rate possible. You can lower your DTI by paying off your revolving credit which will also improve your credit score in most cases.

Private Mortgage Insurance:

If you pay less than 20% down payment on your new home you will be required to purchase private mortgage insurance (PMI). This helps the lender in the event that you default on the loan unfortunitly this PMI can end up costing you as much as 1% of the mortgage although they can be as low as .5%. You can only avoid this by paying a down payment of 20% or refinancing on your mortgage once you have 20% equity.

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