How Do I Find the Best Interest Rate?

How do I Find the Best Interest Rate?

The first thing most borrowers worry about when borrowing a mortgage is the interest rate. It’s what controls your mortgage payment besides the amortization term, so it makes sense that it’s an area of concern for most borrowers.

But how do you get the best interest rate?

It’s not a one-size-fits-all approach.

Finding the best interest rate is a combination of working with the right broker team and improving your qualifying factors to show you are a reasonable risk for the lender. 

Why Does the Interest Rate Matter?

Your interest rate determines how much you’ll pay to borrow money to buy a house. Of course, everyone pays interest, but there are ways to get the most competitive rates available on the current market.

The interest rate is a percentage of how much you owe. So you’ll pay the most interest when you first borrow the funds. Then, as you pay the principal balance down, the interest charges decrease, and you pay more money toward the principal with each payment.

While the interest rate isn’t the only factor to consider, it is important when choosing the most affordable mortgage.

What Affects your Interest Rate?

Interest rates are affected by various factors starting with the current market. Lenders start with the market rates and then adjust them according to your risk factors. The less risk of default you pose, the more competitive interest rates they can offer. 

While many factors affect your rate, the most important factors include the following:

  • Credit scores
  • Down payment
  • Debt-to-income ratio
  • Employment record
  • Loan term
  • Loan type

How can you get the Best Interest Rate?

Getting the most competitive interest rates starts with working with a reputable broker like Jonathan Torres and Torres Mortgage Team. We work with many reputable lenders that offer competitive rates. We do the shopping around for you with only one credit file and loan application.

It simplifies the process and helps you learn your options. We’ll help you compare your options 

To increase your chances of receiving the best quotes, here are the factors to consider.

Maximize your Credit Score

Lenders first look at your credit score to determine if you qualify for a loan. You don’t need perfect credit for any loan program, but the higher your score is than the minimum score required, the more likely you will get a better interest rate.

Your credit score tells lenders how well you handle your finances. A high credit score means you’re financially responsible and pose less risk to the lender. This may help you get a better rate.

Increase your Down Payment

The Jonathan Torres and Torres Mortgage Team works with lenders that offer many loan types, each with a different down payment requirement.

However, if you want the lowest interest rate, you should consider increasing your down payment. For example, if you have 20% saved and will have funds remaining for emergencies or home upkeep, you’ll increase your chances of securing a more competitive rate. However, any down payment higher than the minimum required may help.

Lower your Debt-to-Income Ratio

Your DTI is another factor lenders consider when determining your interest rate. Your DTI measures your current debts (with the new mortgage) with your monthly income. The higher percentage of your monthly income that’s committed, the higher risk of default you pose.

Pay your debts down as much as possible to increase your chances of securing a competitive interest rate. The debts affecting your DTI include the following:

  • Minimum credit card payments
  • Personal loan payments
  • Student loan payments
  • Court-ordered alimony or child support
  • Car payments

Stabilize your Employment

A stable employment record shows lenders you have consistent income. Ideally, you should have a two-year employment history with the same employer, but that’s not the only way to stabilize your employment.

Lenders look for consistent and/or increasing income. For example, if you changed jobs but remained in the same industry and possibly made more income, you show that you improved your situation and are a good risk.

The key is to show stabilization and not look like someone that changes jobs frequently or, worse yet, has employment gaps.

Choose a Shorter Loan Term

Your loan term affects the rates lenders can offer because the longer you borrow money, the riskier it is for the lender.

Mortgage loan terms are available in 10, 15, 20, 25, and 30-year increments. Most people choose the 30-year because the payments are the lowest. However, if you can afford a shorter term with a higher payment, you may secure a more competitive interest rate.

Consider your Loan Type

The loan type also affects your interest rate. For example, you may consider an adjustable-rate mortgage (ARM) in a higher interest rate environment. These loans have a lower introductory rate for the first couple of years and then adjust annually.

For example, if you borrow a 5/1 ARM, you pay the introductory rate for five years, and then your rate adjusts annually afterward. 

What Happens if you Don’t Qualify for the Best Interest Rate?

If you don’t have the qualifications to get the most competitive rate now, you can take the current rates and refinance when your qualifying factors improve.

For example, if you have a lower credit score now but qualify for the mortgage, you can take the mortgage now. You can then work to improve your credit and refinance in the future to save money on your payments and overall interest.

Final Thoughts

To get the most competitive interest rates on your mortgage, consider working with Jonathan Torres and Torres Mortgage Team. Our professionals can shop rates with our partner lenders to get you the best rate you qualify for.

We do the legwork for you, and you only have to complete one loan application and have your credit pulled once. We’ll walk you through your options and help you choose the loan that makes the most financial sense. 

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