Obtaining a low rate on your mortgage can mean cutting the amount of time it takes you to pay off your loan. Shopping for a low interest mortgage takes a little planning and a lot of research - however, the results are worth it. The sooner you get your mortgage paid off, the earlier you can focus on building your retirement nest egg.
It would seem logical that anyone looking for a mortgage would be interested in finding the lowest rate possible, but that's not always the case. Sometimes a family's situation calls for a mortgage with a slightly higher rate of interest. For instance, if you've bought a second home in a resort town and need flexible financing, it's possible that your income and credit allow you to obtain an interest-only mortgage; with the value of the home increasing over time, you and your family will have a relatively inexpensive vacation alternative.
While getting a low rate on your mortgage is important, equally vital is the overall deal you obtain from your financial institution. What are the other costs associated with closing on your home? If they are excessively high, you'll lose more than you gain. Some things to consider when obtaining a mortgage include:
Buying points when you purchase your mortgage reduces the interest rate paid but increases the closing costs. A one-point discount on a $100,000 mortgage lowers the interest rate approximately one-eighth of a percent but also increases closing costs by $1,000. To determine whether buying points makes sense, calculate the monthly savings from the eighth of a point reduction and then divide that number into 1,000. This will give you the number of months it will take to repay the points. Alternatively, you could add the $1,000 to the loan amount but that would defeat the purpose. If you plan to stay in your house for a lengthy period - say 10 years - paying points does make sense.
These are the fees paid to transfer ownership of the property. Make sure every lender tells you up front exactly what those fees are, including title searches, insurance costs, court filing fees, etc. You don't want any surprises at closing. Where possible, try to negotiate the fees down.
Knowing a lender's customer profile saves you time. No matter how good your credit rating, if you are talking to a lender that likes higher risk / higher return clients, you'll never get the low rate you're after. On the other hand, if you know you are dealing with a low-risk lender and your FICO score is over 700, the lender is going to want your business. Be sure to ask for the lowest rate; chances are high the lender will say yes.
Getting a low-interest-rate mortgage requires a little planning, but the savings are well worth the effort. If you know your credit is good, don't be afraid to ask for a deal.