5 Smart Moves to Get the Best Mortgage Loan Interest Rate

If you are looking to purchase a new home, there are 5 things you can do to ensure you get the best and the cheapest interest rate for a fixed 15, 20 or 25 year mortgage term. The really tempting mortgage rates you see on websites like bankrate.com or on the newspapers are for those people with excellent credit histories, not for the average borrower. Those interest rates also require larger down payments, and have literally no credit card debt or very little debt. Most home buyers will have to pay more than what is advertised. Here are 5 tips to help you get the best mortgage interest rate:

i) Pay every bill as soon as it arrives

That's the most important aspect to lenders. Lenders want to know if you will pay your mortgage bills every month after month, without any troubles or delays. If your credit histories show that you have skipped a few payments or are 3-5 days late on your payments, you will be termed as a higher risk hence having to borrow at a higher interest rate. You should also know that a late payment just 2-4 months before you apply for the lower interest rate mortgage will also be termed as a high risk and you will likely not get favourable interest rates. This is why the tip says, pay every bill as soon as it arrives, do not be late!

ii) Make a larger down payment

Lenders know that the more money you put down on a home, the less likely you are to default. Therefore, if a few thousand or even ten thousand dollars helps you save 0.25% in mortgage interest costs, then it is definitely worth it!

iii) Reduce your Debts

Lenders will look at your total credit card debt, auto loans & student loans. They will look at the total amount you owe, the monthly payments you make and compare this against your monthly income. If you will have lots of disposable income left over after paying your debts, you are fine. However, most people won't have this.

Here's a good rule of thumb: Reduce all your credit card debt so that you are using a maximum of no more than 35% of your credit limit.

iv) Do not apply for new credit cards or consumer loans

If you do that whilst you are nearing your application for a lower mortgage interest rate, lenders will be forced to check your credit report. When they do, those inquiries of applying for new credit or loans will show up as entries. This will lower your credit score by up to 12 points, which can make a difference between a good lower mortgage interest rate and a higher one.

v) Shop Around

Get mortgage interest quotes from atleast 3-4 lenders. Do not limit yourself to your existing bank or financial institution. Be willing to look further and beyond.