Ask These 5 Questions, Get the Best Mortgage Rate

Buying a home is a huge commitment and can be a confusing process, especially for first-time homeowners.

Ensuring that you get the best mortgage rate may seem like a difficult task; however, it can be made simpler if you ask yourself the following questions.

1. Fixed-Rate or Adjustable-Rate Mortgage?

In the case of fixed-rate mortgages, the sum of money that you pay towards principal and interest (in other words, the interest rate) remains fixed over the life of the loan.

As far as adjustable-rate mortgages are concerned, the interest rate is linked to an interest rate index chosen by the bank.

Hence, the rate fluctuates over the life of the loan, though it remains steady over the introductory period (which can last for 10, 7, 5, or even just 1 year).

Most such mortgages offer low-interest rates during the introductory period.

However, once this time period is over, the interest payable on the mortgage may increase substantially if the underlying interest rate index rises.

To determine whether you should go for a fixed- or adjustable-rate mortgage, calculate what your mortgage payments would amount to under different interest rate scenarios, and accordingly make your decision.

A useful starting point is to review historical interest rates on fixed-rate and adjustable-rate mortgages, as they may provide insight as to what you can expect your mortgage payments to look like over the term of the loan.

2. Is it beneficial to pay for points?

A point is an upfront fee that you pay to lower the interest rate on the loan by a certain amount.

For example, if you are considering a $100,000 loan at 3.25% interest, you may be asked to pay 1% (one point) - i.e., $1,000 - upfront to reduce your interest rate by 0.125% to 3.125%.

Before paying for points, you should weigh your short-term costs against long-term savings.

Paying for points usually makes sense if you plan to keep the loan for a long time.

On the other hand, a negative point means that your upfront fee will be reduced in exchange for an increase in the loan interest rate.

In this case, as well, you need to compare short-term savings against long-term costs before arriving at a decision.

3. What kind of closing costs to expect?

Closing costs include underwriting and processing charges, title insurance fees, and appraisal costs.

In total, they amount to usually 3% of the purchase price of the home.

You should know that by shopping around for the right lender, you can in some cases, reduce the closing costs of your home.

4. Can any special programs make homebuying less costly?

Active military or veterans qualify for VA loans that offer low or no down payments as well as protection if you fall behind on your mortgage.

FHA loans are available to most U.S. residents - they allow as little as 3.5% down payments and can be very beneficial those with low credit scores.

For individuals in rural areas, USDA loans are beneficial as they may offer low- or no-down-payment mortgages and help cover closing costs.

So, before you close in on a mortgage, find out if you are eligible for any such special programs.

5. What kind of down-payment to make?

Most lenders will tell you that the higher your down payment, the lower the interest rate on your loan will be.

A 20% down payment is usually best; however, in some cases, even a 5% down payment will suffice.

However, you should know that a lower down payment is usually acceptable only if there is private mortgage insurance – and this always adds to the overall mortgage cost.

So, the best practice is to put down as much of down payment as you can while maintaining a cushion for financial emergencies.

If you don’t have the requisite funds to make the required down payment, one way in which you can get them is by approaching our team at Fund&Grow.

We offer individuals with good credit the opportunity to obtain $50,000 - $250,000 of unsecured credit at 0% interest for a period of 6, 12, or 18 months.

All you need to do is call us at (800) 996-0270 and we will take care of the rest.