Trying to save money? Try to get a home loan when rates are low. (iStock)
While COVID-19 has created uncertainty in many areas of the economy, homeowners and those interested in buying a home can take advantage of some of the economic side effects of the pandemic to save money.
In March, the Federal Reserve took steps to help boost consumer spending. The cut in the emergency interest rate was a move to help protect the economy and marked the most substantial reduction since the 2008 financial crises.
Interest rates on mortgage loans and home refinancing are now at a record low for most areas of the country. At the end of June, interest rates on 30-year loans averaged 3.13 percent, and 15-year mortgages averaged 2.58 percent.
While most interest rates are in the lower 3 percent range, it is possible to get an even lower loan. If you want to save a lot of money on your home purchase or your current mortgage, here are some tips to consider:
1. Refinance your loan from a 30-year loan to a 15-year loan
The easiest way to lower your interest rate and save money over the life of your loan is to refinance your 30-year mortgage loan to a 15-year mortgage loan. Lenders will offer the best prices and you will pay for your home much faster.
If you are considering a mortgage refinance, be sure to use Credible’s free online tools for your research. The online marketplace can help you find custom rates in minutes and compare deals.
HOW TO GET THE BEST RATES FOR MORTGAGE REFINANCES
A 15-year mortgage loan allows you to accumulate capital on your property faster than a 30-year loan.
Your monthly payment may increase as you are condensing your debt in a shorter time frame, but if your current interest rate is much higher than the current rate, you may be able to reduce your monthly payment.
If you are looking for a new home, consider opting for a 15-year mortgage instead of 30-year financing.
2. Compare interest prices
Like everything, if you want to get the best price, you will have to search several lenders to find the best interest rates for your situation. Credible can show you interest rates on a multi-lender refinance. You can also use a comparison tool to find out if you qualify for a pre-approval letter without affecting your credit score.
MORTGAGE RATES ARE A ‘SWEET SPOT’: WHY IS THE PERFECT TIME TO REFINANCE
As you review lenders, remember that your loan will likely include additional fees (closing costs, loan origination fees, etc.), so the APR will likely be higher than your quoted interest rate.
Whether you’re looking for a new home loan or interested in refinancing, be patient. There is a lot of interest from other consumers right now, so it may take a little longer than usual to listen to a lender. While you wait, take time to sort out your finances so you are ready to move on when the lender calls you.
3. Pay the mortgage points
You may be able to lower your interest rate by paying mortgage points. Mortgage points are like prepaid interest. Each point you buy equals one percent of the main loan. For example, buying a point on a $ 300,000 loan would equal $ 3,000.
EVERYTHING YOU NEED TO KNOW ABOUT MORTGAGE REFINANCE
Buying mortgage points only makes sense if you plan to stay in the house for a long time and if you can afford the down payment.
4. Take steps to improve your credit score
Qualifying for a refinance or new mortgage loan is a little more complicated than before COVID-19. Because interest rates are so low, lenders want to protect their investments, so they are more particular about the funds they lend. If your goal is to qualify for the best interest rates, you’ll need to make sure that your credit score is in top shape. You must aim for a credit score of at least 760 to get the lowest interest rates.
If it’s not there yet, take a few steps to increase your score. Things you can do to help increase your credit score include:
- Reducing your total debt
- Make payments on time
- Avoid applying for multiple lines of credit in the coming months.
- Check your credit report for errors
- Earn more money
INCREASE YOUR CREDIT SCORE WITH THESE SIMPLE STEPS
5. Provide a considerable down payment
Another simple way to lower your interest rate is to offer a higher down payment. Lenders are more likely to give you a lower interest rate if you show that you have vested interest in your purchase.
WHY IT’S A GOOD IDEA TO REFINANCE YOUR MORTGAGE WHILE RATES ARE LOW
When you provide a sizeable down payment, lenders will find you committed to your investment. If you can afford more than 20 percent, you won’t have to pay for private mortgage insurance, you’ll have a lower monthly payment, and you’re more likely to get your dream home if you end up in a bidding war.
