What You Didn’t Know About Home Loans

Rates fluctuate daily

Borrowers who are eager to secure a home loan with a low-interest rate may get into the habit of checking mortgage rates as often as some people check the weather. Interest rates fluctuate every day, which means the rate you see today may be different than the one you see when you actually are approved for the loan.

The cheapest interest rate does not guarantee the cheapest loan

When choosing a lender, borrowers will often choose the one offering the lowest interest rate, but this can actually be to their detriment. There are other factors to consider, including closing costs and the lender’s policy on releasing equity for a line of credit or a loan. Also, in adjustable-rate mortgages (ARM), the loan featuring the lowest interest rate may not have the lowest rate a few years down the line and may actually cost more in the long run.

A lower credit score can cost you tens of thousands of dollars in interest

Most people know that a higher credit score is generally awarded a lower interest rate, but not many people know to what extent this is true. A high credit score can translate into tens of thousands of dollars in interest payments over the life of a home loan. A credit score difference of 100 points can increase a monthly mortgage payment by $150 or more, depending on the size of the loan and the interest rate.

If you’re thinking of applying for a home loan soon and your credit isn’t in the “very good” category (higher than 740), it may be worthwhile to spend a few months working to boost your score before you apply for a mortgage. If you need help increasing your credit score, reach out to us and we’d be happy to help!

The housing market impacts rates

While the federal funds rate will have the greatest impact on the rise and fall of interest rates, the state of the housing market will affect it, too.  Lenders need to turn a profit from their loans, which means the higher the volume of loans they process, the less they need to earn from each one to remain profitable. Consequently, when the housing market is booming and lenders are granting loans on a frequent basis, they will be more inclined to offer lower interest rates to borrowers.

You can have your mortgage payments automated

Your home loan payments will likely be your largest monthly bill, and missing a payment or paying it late can have serious consequences. Fortunately, you can avoid these scenarios by signing up to have your monthly mortgage payments automatically deducted from your checking account. Most lenders provide this service; check with yours to see if this is an option they offer.