When you’re buying a home, comparing interest rates and mortgage terms at different banks is a smart thing to do, since your mortgage loan is likely to be the biggest debt you’ll assume in your lifetime. The interest rate you pay on your mortgage will substantially affects the overall cost of your residence, or the returns on your rental investment. Here are a few steps you can take to ensure you get the best deal possible:
Find out your credit score
Your credit score will be used by lenders to determine whether you qualify for a mortgage, and whether you will be offered the lowest interest rates. Higher credit scores will lead to better terms on your loan. For this reason, it’s always best to get a copy of your credit report at least 6 months before you apply for a pre-approval. That way, you’ll have the time to fix any errors before your credit score is reaches the bank.
Compare different loan options
There are many types of home loans, each catering to different financing needs. The two main types are fixed rate and variable rate mortgages.
Fixed-rate mortgage: A fixed rate mortgage is a loan in which the total mortgage amount and charges paid each month by the borrower remains the same for the entire term of the loan, or for an agreed-upon part of the term. This type of mortgage is attractive to many borrowers because it allows for predictable accounting, and protects them against the risks of market fluctuations.
Adjustable-rate mortgage: With an adjustable rate, both the interest rate and the mortgage payment vary, based on market conditions. Under normal conditions, the initial interest rates are fixed for a specific period of time, after which it is readjusted on a monthly or annual basis.