The first thing to know about mortgage rates is that they are highly flexible. If the rate is 5% today, it might become 5.5% in just a few days. But what difference does a small change of .5 will create? Actually, it can significantly impact your monthly mortgage payments and consequently alter your whole financial situation.
Monthly mortgage payment normally has two main components: 1) interest owed on remaining loan balance and 2) a part of principal loan amount. Now for a loan of $20,000 with 5% fixed rate and 30-year term, monthly payment will be $1074. However for a 5.5% rate it would be $1135. A mere difference of $61 will compound to $21,960 over a span of 30 years, which you could have otherwise put to a better use. So it’s very essential that you keep yourself updated about mortgage rates and lock in to a rate if you think it’s good for you. Locking in is pretty simple. All you need to do is let your lender know that you accept the offered rate, and then it will neither go up or down for you between the offer and the closing period.
But at the end of the day, for a first time buyer, mortgage rate is just a contributing factor. While deciding to avail a mortgage loan, you have to give due consideration to other things like down payments, other future plans, and your overall financial situation.
In case of refinancing loans, mortgage rate becomes much more significant. Suppose rate on your current loan is 5.5%, and there comes a low in mortgage rates, and you get a 4%. Depending upon how much outstanding loan balance you have, all the paperwork and refinancing fees might actually be worth it.
Now, how to get the best rate? A lot of factors like economy, government policies etc. influence mortgage rates. And there’s nothing that you can do about any of these. However one factor which you can control is your credit score. Lenders are usually more likely to offer you a low rate if you have a good credit score. Obviously credit score cannot be changed overnight, but if you have a mind to avail a mortgage loan, you can at least check up your credit and make sure that you don’t reach the maximum credit limit or make any defaults in payments.
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