Five Ways to Lower Interest Rates on Your Real Estate Mortgage
Let us share with you one very interesting tidbit about real estate mortgages that you might not know: mortgages actually do not have fixed interest rates, unlike other forms of loans (credit cards and unsecured loans, for instance). As a matter of fact, real estate mortgage interest rates vary on a case-to-case basis, as lenders essentially have the liberty to offer different interest rates to different people. This is why you normally will not see mortgage interest rates published, or if you do, they are usually declared as a bracket, or with fine print attached.
Knowing this, it is only natural to want to obtain the best possible interest rate for your mortgage. And although this is completely up to the lenders’ discretion, there are actually five ways that can help you obtain a low-interest rate on your real estate purchase. These are:
As they say, “a rolling stone gathers no moss.” Whoever came up with this adage was probably thinking about mortgages. If you have changed employers several times over a 3-year period, lenders are more likely to view you as an unstable prospect. This means that they will see you as a potential risk, and, therefore, give you higher interest rates. However, if you haven’t changed jobs too much and actually show longevity, you are exhibiting stability and commitment. This makes lenders comfortable enough to offer you lower interest rates—provided that you satisfy their other criteria, that is.
Similar to your employment, lenders tend not to trust people who move around a lot. Again, this is a sign of instability. Lenders want to be able to easily find you as and when they need you. This cannot happen if you do not stay anywhere for too long. As a result, lenders will treat you as a high-risk borrower, which invariably lead to higher interest rates on your mortgage.
With most mortgages, the house you are buying generally serves as the collateral for the loan. This is why factors such as the age of the house, depreciation, location, etc. figure so heavily when it comes to mortgages.
Generally, lenders would prefer that you buy a brand-new house from a licensed developer because the market is so much more competitive that they are able to give you better interest rates. Buying second-hand houses from private owners, on the other hand, tend to be more risky for them because the value of the house could be suspect, so interest rates are generally higher.
Your credit file
Many people make the mistake of applying for a mortgage over and over in a short period of time. This means that their credit file is being repeatedly accessed over the same short time frame. This is not ideal in any way as this could lead to over-inflated interest rates.
The best way to do it is to get an estimate on the best interest rate that lenders can offer you first before you officially turn in your application. This way, you know that you are able to meet the lenders’ criteria, which means that you are likely to have a successful application the first time.
Your loan amount versus the actual value of the house
Basically, the interest rates that lenders can offer you are based on the risk that they are undertaking by giving you a loan. Obviously, the higher the loan amount, the higher the risk involved, as well. This means that you can successfully lower your interest rates by providing equity, usually in the form of cash, or the sale of your old house. The higher the equity that you are able to throw into the deal, the lesser your interest rates will be.
Suffice it to say, the wiggle room available when it comes to real estate mortgage interest rates is wide and flexible, waiting for you to make the most out of it. It is up to you to exploit it your advantage in order for you to enjoy the best possible interest rates. So gather your documentation, make it foolproof, and be the most ideal candidate that they have ever seen. This way, you will acquire the house of your dreams at a price that suits your reality.
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