Negotiating for a Mortgage Loan can be a little tedious and tricky until you are well aware about the intricacies surrounding the same. Read the following article to know ways of smartly negotiating mortgage interest rates.
Negotiating mortgage interest rates pretty often goes beyond just than the rate itself. But, if you are out in the market in order to buy a new home you should be well aware about the loans and the current interest rates floating across in the market. But how do you go about negotiating your mortgage interest rates? Read on to know more.
Negotiate Interest Rates and Closing Costs
When you opt for a loan, you will have to pay a fee that is termed as closing costs. Now closing costs can range anywhere between 3 to 6 per cent of the entire loan amount and usually includes fees such as a loan origination fee, an application fee and appraisal fee. These are just a few that are worth mentioning.
Luckily, you can save on these costs by negotiating with the seller through the process known as ‘seller concessions’. Seller concessions are not only limited to covering closing costs. Seller concessions can also be used to reduce the rates of interest on your loan amount by “buying down” your rate of interest. Once you buy down the rate of interest, you pay a certain amount of money upfront in order to reduce the rate of interest for the entire term of loan.
Try to Understand the Debt-to-Income Ratio
While lending out loan, lenders always make sure that you are able to make all your monthly payments accordingly and comfortably so that you don’t end up in defaulting on your loan. So the lenders naturally closely analyse your debt-to-income-ratio that draws a comparison between your debts with your income. This includes long-term debts such as student loans, car loans, child-support or alimony. After the lenders have reviewed all your finances, they will reward borrowers who have a low ratio with a lesser percent of interest rate. It is recommended that you work towards lowering your debt-to-income ratio by making payments to any kind of revolving debts. This will not only help in improving your debt-to-income ratio but also help in improving your credit score.
Get a Mortgage of 15+ years
While opting for a mortgage loan, it is advisable that you opt for a short-term loan. This is because a shorter-term mortgage loan usually offers much lower interest rates. But, how much can you end up lowering your interest rates in a short-term mortgage?
An organization that provides housing and news analysis, the interest rate for a 30 year old fixed-rate mortgage of 4 per cent, compare that with the 15-year old fixed rate of 3 per cent and you can definitely understand the differences in the amount that you actually end up saving.
Never put all of Your Eggs in One Basket of only One Lender
You must understand that the mortgage market is extremely competitive and you should use it to your advantage. The more you make it known to the lenders that you are well acquainted the mortgage market and loans available in the market – the more you can end up negotiating about lowering your interest rates. But, just saying these might not help. Be prepared and carry updated copies of all your credit reports and make sure that you make copious notes of whatever you have learnt through your research period. Remember that the process does not end after you have decided upon the final lender. You will also need to lock in the deal and ensure that your lender puts their money where it is rightly required.
Remember one thing; never allow lenders to pull all your credit reports before you have finalized a lender. An increased number of inquiries can have a negative impact on your credit score thus costing on your interest rates. Once you have opted for a mortgage company, you will have to authorize them to pull your credit report as a part of the application process.
Author Bio: Sampurna Majumder is a professional writer who enjoys creativity and challenges. Barely a year into new media, she has written several posts, articles and blogs for prominent websites. The above article throws light on mortgage interest rates for property.