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Did You Know…? PRO TIP

June 11, 2018 | Weekly Commentary

by Joseph F. Goldfeder, CFP®, Assistant Vice President
Looking to buy a home? How do you know if you’re getting the best rate?

If you’re planning on buying a home soon, one of the most important steps is obtaining a mortgage. It is probably one of the first things you should check off your list. Too often, eager home buyers neglect to search for the best rate possible. Many avoid comparing lenders and go with the first option they can find, which could end up costing borrowers more in the long run. There are many factors that go into your rate that you can’t control, but there are also some ways for you to ensure that you’re getting the best rate possible. Let’s review.

Credit Score
One major piece that you can control when it comes to getting the best rate, is ensuring that your credit score is in good shape. Lenders use your credit score to predict how reliable you will be in paying off your loan. The general rule of thumb is the higher your credit score, the lower the interest rate. If you’re looking into purchasing a home, be sure to look into your credit score ASAP and take action if needed. There are many providers such as Credit Karma, which will offer your credit scores for free.

Loan Type and Term
When you begin exploring mortgage options, you should keep in mind that the type of loan you choose may have an effect on your rate. Typically, adjustable-rate mortgages have a lower interest rate than fixed-rate mortgages. Adjustable-rate mortgage loans have an interest rate that will “adjust” periodically. They are traditionally structured to change every year after an initial period of remaining fixed. Fixed-rate loans are just that, fixed for term of the loan. Loan term is another big factor. Typically, shorter-term loans have lower rates and lower costs, but higher monthly payments. It is important to weigh all aspects of your loan; type, term, and rate before making a decision.

Down Payment
Another factor in your rate is your down payment. Under normal circumstances, the higher your down payment is, the lower your rate will be. This is why people typically like to build a strong savings before they look into buying a home. Usually, 20 percent or more for a down payment can keep you at a lower rate. If your down payment is lower than 20 percent, you face the possibility of a higher interest rate.

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