For many, a mortgage is the largest form of debt they may acquire throughout their lifetime. Due to the cost of real estate, this special type of loan is required for many to be able to afford purchasing a home. The details of each mortgage can vary for each transaction. To help navigate this process, we’ve compiled a few tips to help you find the best mortgage rate.
Use a mortgage calculator
When searching for the best mortgage rate, a great place to start is with a mortgage calculator. This tool will allow you to estimate your monthly mortgage payment and tweak parameters of the loan to fit your needs. You can adjust numbers based on the house payment, interest rates, taxes, insurance, etc. This is especially useful for allowing you to preview a number of different scenarios and establish a realistic price range when searching for your next property. The following fields are what you can typically expect to see in a mortgage calculator:
Purchase price: The cost of the home being purchased.
Down payment: The amount of money being paid upfront to buy the property.
Property taxes: The tax paid annually by the property owner.
Loan term: The total amount of time provided to payback the loan.
Interest rate: The cost to borrow the money provided by the lender.
Insurance: Your annual cost to insure the home and your personal belongings.
Maintenance: Annual cost to maintain the home.
Understanding mortgage types
Mortgages can typically be categorized into 2 different types: prime rate or subprime. The type of mortgage you are eligible for will depend on a number of factors, such as your credit score, employment history, and debt-to-income ratio. To better understand these types of mortgages, let’s break it down here:
Prime mortgages
These types of mortgages are reserved for borrowers considered less risky by lenders. To qualify, borrowers will typically need a good credit score and have a considerable down payment prepared. The idea here is that these mortgages are considered safer for lenders to participate in since it is less likely for these types of buyers to default on their payments. Due to this, they are able to justify a lower interest rate for these types of mortgages. If you are searching for the best mortgage rate possible, you’ll need to qualify for a prime mortgage. To understand if you qualify, speak with your mortgage specialist at your lender of choice, or a mortgage broker - we’ll get more into this later.
Subprime mortgages
These types of mortgages are offered to borrowers who don’t meet the criteria mentioned above for prime mortgages. Typically, this means borrowers who have a lower credit score and are not providing enough of a down payment that the lender is as comfortable with. As a result, the lender won’t offer as low of an interest rate to these borrowers due to the increased risk that they would need to adopt. If you find that you are only able to qualify for these types of mortgages, take necessary steps to improve your credit score and consider holding off on purchasing a property until you are able to acquire more of a down payment.
Variable vs. fixed-rate mortgages
Another aspect to consider when shopping around for the best mortgage rate is whether to go with a variable or fixed-rate mortgage. This determines whether the interest rate on the mortgage will fluctuate over time, resulting in varying payment costs. Fixed-rates have the benefit of being what you might have guessed - being fixed - but are typically offered at a relatively higher rate. Variable rate mortgages are usually offered with a lower starting rate, but are susceptible to being increased throughout the payment term. If you are looking for the absolute best rate possible, it might seem like the variable rate is the way to go, but just know that the rate can be changed by the lender and may result in a higher payment later in the term that may surpass the originally offered fixed-rate mortgage.
Work with a trusted mortgage broker
The role of a mortgage broker is to find the best mortgage product for their client’s needs. Dealing with a mortgage broker has its advantages, as someone reputable would be knowledgeable about current market conditions and have a network with a variety of lenders to choose from. This can also save you time, as someone else would be tasked with finding you the best mortgage for your deal. Beyond finding the best mortgage product, they can also be a valuable resource for getting access to more equity, refinancing your property, aid in purchasing investment properties, along with other tasks to help support your finances. Mortgage brokers are also likely to be aware of mortgage deals and lenders that are directly accessible to the public, which provides a new array of options that could be considered. Working with a trusted mortgage broker will likely find you the best mortgage rate available to you, while saving you time in the process.
Finding the best mortgage rate can take time, but saving money on interest payments makes it well worth the effort. Due to ever-changing market conditions, it’s a good idea to stay current with provided rates and have an idea where things are trending. Again, a trusted mortgage broker should be able to provide you with this level of insight and help you set realistic expectations. If you plan to acquire a new mortgage to purchase a property, you will also need to work with a trusted real estate lawyer. Doormat was created to help simplify real estate legal services for everyone. Get in touch with us today to learn how we can provide the best property transaction experience possible!
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