Boston area mortgage holders agree, a mortgage is probably the single largest financial obligation most American homeowners will ever assume. Unlike personal loans, car loans or other consumer loans, the interest rate on a home mortgage loan can add up to a substantial amount over the life of the loan. Conversely, the lower your mortgage interest rate, the more you can save over time. For example, on a mortgage loan amount of $250,000, half a percentage point (.5%) can represent a $23,427 difference in the interest amount paid for the life of a 30-year fixed-rate loan.
Boston Area Mortgage Search: Rating Rates
In today’s digital lending environment, most mortgage lending institutions have made it easy and convenient for borrowers to go online to get information on interest rates, different loan programs and answers to their money questions. Of course, you may still want or need to work with a mortgage broker to assist you in the borrowing process. This is especially true if you have credit concerns, blemishes, bad credit or non-standard sources of income. Most mortgage brokers can offer options available with different lenders to find the best product and service for your specific financial situation. Plus, brokers are often able to find the best interest rates because they search a variety of sources on your behalf.
So, how do you get the lowest interest rate on the Boston area mortgage that best meets your needs? Consider these tips from seasoned mortgage brokers.
Tie up any loose ends on your personal finances.
Cleaning up your financial situation prior to applying for a mortgage will help you find a lower interest rate. If your credit score needs a little boost, plan ahead to raise your score by paying your monthly obligations promptly when due, avoiding adding new debt or additional credit accounts, and periodically checking your credit. By checking your credit report on a regular basis, you can better manage or correct any errors that may appear. It’s better to address them ahead of time rather than dealing with them during the loan application process.
When it comes time to figure out how much money you qualify to borrow, the mortgage brokers offer this advice. Mortgage lenders analyze your debt-to-income ratio by calculating the relationship of your total liabilities to your gross income. So, brokers suggest, lower the amount of debt you owe by paying down or paying off credit cards, student loans, or other consumer debt to be able to afford a higher priced home. The normal accepted debt-to-income ratio for qualified borrowers is a maximum of 43%. In other words, your total monthly obligations –including the PITI payment you’re seeking – should not exceed 43% of your gross monthly income.
In addition, it’s important for borrowers to fully understand the relationship between their overall mortgage qualifications and the resulting mortgage interest rate and terms. Among the qualifications are income, job history and stability, other available assets, liabilities, credit score, and source of down payment. Borrowers with good qualifications are likely to enjoy the lowest interest rates available in the Boston area mortgage market. Those borrowers are considered by lenders as prime customers based on their ability to repay the debt, and are rewarded with the best rates and terms.
Make the best choice on rate type.
One important decision that most borrowers face is whether to obtain a fixed-rate loan or an adjustable rate mortgage (ARM.) While fixed-rate mortgage loans – as the name implies – have a locked-in interest rate during the life of the loan, an ARM starts with a fixed rate period that typically is lower, but after the prescribed period the rate can vary based on market volatility. The interest rate could increase or decrease.
Both loan types have their advantages and disadvantages. The low cost of ARMs offers a degree of appeal during the initial period, yet because the rates can increase it can make some borrowers uneasy. Fixed-rate loans offer greater rate peace of mind, but can be more expensive in the long run. Usually the deciding factor, according to mortgage brokers, is the length of time the borrower plans to stay in the home. If a borrower plans to own the home for a period of, say, 5-7 years, an ARM may be the best choice. For a borrower planning to stay in the home for a longer period, a fixed-rate loan could better suit his needs.
Consider the term of the loan.
The term of the mortgage loan is also a key component in affordability and in obtaining a lower interest rate. The shorter the loan term, the lower the interest rate. However, with the shorter term and lower rate comes higher monthly payments. For borrowers contemplating a shorter term with higher payments, consider this. If you have a personal financial emergency and are already near or at the maximum payment for which you qualify, the emergency may temporarily impact your ability to repay. Most mortgage experts recommend taking the longer term and – as additional finances permit – make additional principal payments. That way, the loan will be paid down as if it had a shorter term. Simply put, you can always pay down the loan and even pay it off ahead of schedule, but unless you refinance the entire mortgage, you won’t be able to reduce your payments once you sign the promissory note.
You can find a lot more Boston area mortgage information in our Boston Mortgage Info section of articles to your right just below the Boston Real Estate Categories. We also constantly update mortgage news on Twitter and Facebook. We hope you’ll check us out there, too.