Strategies for Securing a Lower Mortgage Rate
Mortgage interest rates are often at the forefront of homebuyers’ minds, and for good reason. For most homeowners, mortgage payments represent the largest monthly obligation in their budget. Even a small difference in rate can have a significant impact on monthly payment amounts, so getting the best deal is important!
Here’s an example of the difference in monthly mortgage payment amounts with just a 0.5% difference in rate:
| Purchase Price ($) | Loan Term (Years) | Interest Rate (%) | Down Payment (%) | Monthly Payment ($) |
| 350,000 | 30 | 6 | 5 | 1,993.51 |
| 350,000 | 30 | 5.5 | 5 | 1,887.90 |
* This is not a commitment to lend. Rates and payments are examples for informational purposes only. Example does not include amounts for taxes and insurance premiums.
As you can see in this scenario, just a 0.5% difference in the mortgage rate can result in over $100 in monthly savings. That’s over $40,000 in total interest savings over a 30 year loan period, enough to buy a new car or fund a family vacation!
Want to run your own scenario? Try out the Summit Mortgage Calculator. Then, if you haven’t already, find a Summit Loan Officer to help answer any questions you may have and guide you through the home financing process.
Now that we’ve covered why interest rates are important and how they contribute to your monthly mortgage payment, let’s discuss a few strategies for securing a lower rate:
- Improve Your Credit Score: The better your credit score, the better the rate you will be eligible for. You should monitor your credit closely, especially when you’re preparing to buy a home. Check your credit report to make sure your report is free of errors and dispute any inaccuracies. If possible, pay down your debt balances and avoid opening new credit accounts. To learn more, check out our article, 5 Credit Considerations Before you Apply for a Home Loan.
- Increase Your Down Payment: Oftentimes, a larger down payment can help you secure a lower mortgage rate. This is because the more money you put down, the more equity you’ll have in the home from the beginning, which lowers the lender’s risk. There are however low down payment exceptions for qualified buyers, so it’s worth consulting with a Summit Loan Officer to explore programs that may offer a low-down payment with lower interest rates. Ready for a deep-dive into down payment strategies? Read our First-Time Homebuyer Down Payment Strategies
- Choose the Right Loan Type: The type of mortgage loan you choose can impact your interest rate. For example, a fixed-rate mortgage has a stable rate throughout the term, whereas an adjustable-rate mortgage may offer a lower introductory rate but have a variable rate that can increase down the road. There are many factors to consider when choosing a loan type, so it’s best to work with a Summit Loan Officer to explore your options.
- Reduce Your Debt to Income Ratio: Paying off debt can help reduce your debt-to-income ratio (DTI), which lenders use to assess your ability to manage your monthly payment obligations. Having a lower DTI ratio may also help open the door to loan programs that offer more favorable rates.
- Think About Timing: Mortgage interest rates fluctuate based on economic conditions, so keeping a close eye on the market can prove beneficial. Timing the market is tough, but there are lots of resources available and professionals from whom to seek advice. Having a conversation with a Loan Officer is a good first step in determining whether it’s the right time to buy or refinance a home.
By following these strategies, you’ll be well-positioned to secure a competitive mortgage rate, ensuring that your home financing is as cost-effective as possible.
