Finding the best rate for your mortgage can be a challenge. This is true whether you are purchasing your very first home, or refinancing your existing one. In order to protect your investment, it’s important to have some basic level of understanding about how mortgages work, as well as the differences in adjustable and fixed interest rates.
The best way to protect your home is by ensuring you receive the best mortgage possible for your situation and understanding the options that are available to you – comparing through a service like www.ratesupermarket.ca is ideal, but the next best method is to call around and get quotes by phone. However, the first step is, gaining knowledge and doing research – do you know what type of mortgage you have? If not, you may be swimming in dangerous waters.
Understanding Your Mortgage
The first step toward securing the best mortgage rate is to understand your mortgage. Basic types of mortgages include:
Hybrid Adjustable Rate Mortgages: These have a fixed payment in the first few years and then turn into an adjustable loan. They will be designated by numbers such as 3/27, where the first number designates the number of years the loan is at a fixed rate and the second is the life of the loan.
Adjustable Rate Mortgages (ARMs): This is a mortgage that has an adjustable rate when initiated.
Fixed Rate Mortgages: These have a fixed rate for the entire life of the loan.
Tips for Ensuring the Best Rate
Once you have determined what is available and which option best suits your needs, you need to ensure that you are receiving the best possible mortgage rate. In order to obtain the best rate, use the following tips:
Know your credit rating. A lower rating can raise your mortgage rate by a substantial amount. If your score is low, you should work to increase it prior to applying for a mortgage.
Determine how much of a mortgage payment you can realistically afford, and make considerations for fluctuating rates.
Consider opting for a shorter term. When you choose a 15 year mortgage, you may be able to also achieve a lower rate on your mortgage. It’s important to note, however, that while the interest rate will be lower, the mortgage payment will be higher since the term length of the mortgage will be substantially shorter.
Get several different quotes. This can be done easily through the use of websites that allow you to do side-by-side comparisons, which is beneficial if you are buying or refinancing.
Evaluate the associated fees and not just the rates. This includes title fees, closing costs and points, which are essentially pre-paid interest.
Adjustable mortgage loans may, at times, result in higher rates. This then translates into higher interest expenses and a higher monthly mortgage payment for the same amount of money that you originally borrowed. Due to these types of fluctuations, it can be difficult to develop a monthly budget since payments can—and often do—vary.
What Factors Impact Your Rate?
While the housing market is showing signs of improvement, mortgage rates have continued to fluctuate dramatically, which is why it’s a good idea to take your loan officers advice as to when you should float or lock your interest rate.
This advice is likely to change daily due to the changes in the financial markets. Understanding the factors that will impact your mortgage rate is also an important aspect in determining what you must pay from month to month. Some of the most impacting factors include:
- Your credit score
- The Federal Reserve: Interest rates decline when the U.S. Treasury purchases securities or debts in order to help the economy.
- The type of loan you have. The loan’s rate will be directly impacted by its type. For example, ARMs will have changeable interest provision in the contract, which means that the rate adjusts as global conditions change.
- How much you are borrowing. The less equity you have in your home, the higher your interest rate is likely to be.
Receiving the best mortgage rate and protecting your home is dependent on your specific situation. If you have a good credit rating, you will be able to obtain a better rate. Using the tips here will help you achieve the best mortgage rate for your home purchase or refinancing, which in turn will ensure you can afford your payments and that you will not be off-guard if your adjustable loan rate increases.
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