While the prospect of buying a home is always exciting, your enthusiasm can often be offset by the stress that comes from securing a mortgage. Typically, the reason why so many become anxious when shopping for a mortgage is simply due to unfamiliarity. This is especially true if you are a first-time homebuyer. As is the case with any financial transaction, you want to get the best deal possible, yet at the same time, don’t want be unrealistic in your expectations.
Understanding Interest Rates
When people refer to the “cost” of a mortgage, they’re specifically talking about the interest rate. Interest is essentially the price you pay for taking out a loan, and for many first-time buyers, is incredibly misunderstood. Many only focus on the amount they are asking to borrow, then later find out that they could end up paying almost twice that much in interest by the end of the loan repayment period. Thus, when searching for a mortgage, the interest rate should be one of the primary factors you consider.
Securing the Best Rate
While a difference of a few percentage points may not seem like much to you right now, you’d be amazed at how much a slightly higher rate adds up to over 15-30 years. Therefore, you should do all that you can to find the lowest rate possible. Here are some tips to help accomplish that goal:
- Pay attention to your credit score: Your personal credit rating goes a long way to not only determining your eligibility for a loan, but also what rate you’ll pay. The better your score, the better interest rate you’ll earn.
- Contact multiple lenders: If you have multiple interest rate offers, you may able to negotiate a better rate by asking your preferred lender to match that of a competitor.
- Understand your mortgage options: If it’s predicted that interest rates may drop in the future, getting an adjustable rate mortgage might be your best option. However, with a fixed-rate mortgage, you don’t risk paying more of rates rise instead of fall.
Ultimately, what’s most important to remember is that you do have options (after all, it’s called “shopping” for a mortgage for a reason). Familiarizing yourself with those options will not only help to remove much of the stress that can come with buying a home, but also may end up saving you tens of thousands of dollars over the life of your home loan.