As a first-time homebuyer in the current housing market, we understand how difficult it is to find “the best rate”.
In this Q&A, Norfolk’s mortgage lender, Steven Petersen, addresses common questions and offers practical tips for securing the best rate.
Q: What type of rates are involved with mortgages?
A: There are 2 popular options, fixed-rate mortgages and adjustable-rate mortgages. Fixed-rate mortgages have the same interest rate for their entire term. Adjust rate mortgages (ARMs) can raise or lower their rates after a certain period.
Q: What factors determine my interest rate?
1) credit score: Lenders use your credit score to predict how reliable you’ll be in paying your loans.
2) Home price and loan amount
3) Loan term: In general, short-term loans have lower interest rates and lower overall costs, but higher monthly payments.
4) Interest rate type: Your initial interest rate may be lower with an adjustable-rate loan than with a fixed-rate loan, but that rate might increase significantly later.
5) Loan type: Rates can be significantly different depending on what loan type you choose.
Q: When I look online at interest rates, they are lower. Why is that?
A: The interest rates posted online are going to be the top tier, best rate scenario possible to peak borrower’s interest and click into their site. Most interest rates shown online also include points to look even lower. Points, also known as discount points, lower your interest rate in exchange for an upfront fee. While points can be a good tool to lower your rate and therefore pay less interest over time, it gives a false perspective on current mortgage rates. It is possible to get a lower rate, but it will come at a cost.
Q: What can I do to get the best interest rate when buying a home?
A: One major key to getting the best possible interest rate when buying a home revolves around your credit score. The higher your credit score is the better rate you will get. Credit scores are not the only factor, but it is a big one. Other factors like loan amount and home price or value are also key factors for your interest rate. Monitoring your credit and fixing any issues along with starting the mortgage process early can help to ensure you get the best possible mortgage interest rate.
From the types of mortgages available to the key determinants of interest rates, Steven has provided invaluable insights into navigating this complex terrain. Remember, while online rates may appear enticing, they often represent the best-case scenarios and may come with additional costs.