Mortgage Interest Rates – 5 Things a Home Buyer Should Know
If you are considering purchasing a home in the Tacoma Real Estate 
area…or in Pierce, south King, or north Thurston Counties, like most buyers you will need to attain a home mortgage loan. Mortgages can be a little scary, so edcuating yourself a bit, and finding a reputable lender are steps you can take to make the process more comfortable.
In the following article, Brandon Cornett, offers some guidance to home buyers shopping for a mortgage loan. Additional resources below article.
by Brandon Cornett
There’s plenty of homework involved when buying a home for the first time. The terminology alone can make your head spin. But one of the most important concepts you should understand is the concept of mortgage interest rates and how they are applied.
Specifically, you need to know how you can get the lowest interest rate on a mortgage loan by reducing your debt and improving your credit. These are the things we will discuss in this lesson.
Let’s start with some general terminology. When you buy a home, you will hear the terms “mortgage rate” and “interest rate” used quite often (especially when you start dealing with lenders. Within the context of home buying, these terms mean the same thing. They both refer to the interest rate the lender gives you when approving you for a mortgage loan.
This is a key concept to grasp, because it will partly determine the size of your mortgage payment. Obviously, you want to get the lowest mortgage interest rate possible, because this in turn will reduce the size of your monthly payment.
Getting the Lowest Interest Rates on a Mortgage
Now that you understand the core principles at work here, we get to the million-dollar question that every home buyer wants to know: “How do I get the best interest rate on my mortgage loan so I can save money?” The answer to this question lies within the five key points listed below:
- Interest is the first ‘I’ in the acronym PITI, which refers to the four parts of a mortgage payment — principal amount, interest, taxes and insurance. PITI. So by getting the lowest possible rate on your home loan, you are reducing one of the four key components of the loan.
- The mortgage interest rates offered by lenders will vary from one borrower to the next — often significantly. This has a lot to do with a person’s credit score. In order to qualify for the best rates on a mortgage loan, you need to have excellent credit. This is something to keep in mind when you see a “teaser rate” offered in an advertisement. There’s probably an asterisk with some fine print that says “for qualified borrowers.” This means they are only offering their lowest interest rate to a select group of people above a certain credit range. So it may or may not apply to you.
- To get the lowest rate on a mortgage loan today, borrowers need even better credit than they did a few years ago. This comes as a result of the subprime mortgage crisis that spread throughout our economy. Lenders have stricter requirements. It’s harder to qualify for a loan, and it’s a lot harder to qualify for the lowest mortgage interest rates on your loan. To get the best rates in the post-mortgage-crisis economy, you will probably need a credit score of 750 or above.
- As a home buyer, you should learn the advantages and disadvantages of fixed-rate and adjustable-rate mortgages. The adjustable mortgage (ARM) gets its name because it starts off with a relatively low interest rate, but after a few years it will adjust or “reset” to a higher rate. Many of the people who had their homes foreclosed upon in 2007 – 2008 were people who had adjustable / ARM loans that they held onto past the adjustment point (instead of refinancing). The mortgage interest rate shot up after a few years, and they could no longer afford their homes. Learning the difference between these loans will you avoid becoming a statistic.
- If you plan to stay in the home more than a handful of years, then you might want to consider the fixed-rate mortgage. As you can probably guess by the name, this type of mortgage keeps the same interest rate over the life of the loan, regardless of whatever ups and downs happen in the economy. So you have a greater level of certainty over the long haul. A common (but somewhat risky) strategy among home buyers is to start of with an ARM loan in order to secure the lowest mortgage interest rate possible, and then to refinance into a fixed-rate loan a few years later before the ARM adjusts. If the value of your home drops during that initial period, you may not be able to refinance. We are seeing a lot of this right now. So be realistic about your long-term plans, and choose your mortgage accordingly.
This article will help you understand what it takes to get the lowest mortgage interest rate when buying a home. But your research and education should not stop here. To be a smart consumer, you must continue learning about the topics covered above. In particular, I recommend that you read up on the differences between adjustable and fixed-rate mortgages, the pros and cons of each type, etc. This is a key area of research that many home buyers skip over … much to their detriment.
I hope this tutorial helps you secure a low interest rate on your mortgage loan, and I wish you all the best in your home buying experience.
* Copyright 2008, Brandon Cornett.
About the Author: Brandon Cornett publishes a number of educational websites for consumers. He is the creator of this real estate information website as well as the Home Buying Institute.
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The Trey Affolter Team, Keller Williams Realty, always welcomes comments and is available to answer questions about Tacoma Real Estate and the surrounding cities within Pierce County Real Estate, South King County Real Estate, and North Thurston County Real Estate.
253-222-6000
http://www.TreySellsHouses.com
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