Who wants to pay more than the house costs? It may be challenging to lower one’s rates, but there are ways to have a lower payment. Below is an eight-step guide on how to lower your mortgage.

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What Is a Mortgage Interest Rate?

A mortgage rate is how lenders profit from home loans. The interest is x percentage of the loan. Although there are several mortgages and the interest varies, on average, it will be around 7.5%.  

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How is a mortgage interest rate determined?

The interest rate is determined by the lender, but every company takes certain precautions. The Federal Reserve impacts interest rates. They do not control interest on mortgages, but if the Fed rate shifts, those will reflect in mortgage payments. Factors like the Fed and the market are not in your control. However, some particulars impact your rate, such as the loan amount, credit report, and even employment, which can affect what you are offered. Below are tips to lower the rates.

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1. Shorten the Loan

One of the easiest ways to pay less interest is to choose a shorter term. A 30-year may have lower monthly payments, and the cost is increased because the interest rate is greater. Opt for the shortest loan possible if you can afford the payments. 

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For more information about choosing a mortgage term, click here. (Hyperlink the article "Is a 20-year mortgage better than a 30")

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2. Shop Around

Whether getting a mortgage or refinancing, check rates with a few lenders. Calling around may provide savings. Even if it is a fractional difference in interest or fees, it is best to learn the going rates. 

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3. A Consistent Employment History

One significant personal factor is consistent work history. A borrower fresh out of college with a year's work history will get higher interest rates than a borrower who has been at their job for five years. The more extensive the work history, the more savings.

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4. Improve Your Credit Score

Another factor in determining the interest rate is the credit report. Most lenders want an "Excellent" score of 740 or higher. As in work history, a lower rate of interest is not required, but the higher the credit score, the better home loan options. 

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How to Raise My Credit Score?

If you have outstanding credit card debt, pay it before applying for the loan. Maintaining the same credit account for a time is also essential. Opening and closing lines of credit may result in a few deductions on the score. 

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5. A Large Down Payment

The larger the downpayment, the less interest. If you can do it, having a sizable down payment will save you money. At the time of this article, the average interest rate on a $500k mortgage with a credit score of 740 and a downpayment of 3% was 7.522%. When you bump the downpayment to 20%, the interest rate drops to 7.357%. This is more than ample compensation for the upfront costs. In most situations, a larger downpayment is beneficial.

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6. Lock-In Rate

Mortgage rates are on the rise, lenders offer locked-in (or fixed-rate) mortgages. This will protect you from rising rates. However, if rates drop, you will not benefit. Fixed-rate is considered the safest route. Even if interest rates drop (which are seldom), the predictability of the payment is assured.

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7. Buy Mortgage Points

If you plan to own this property for a long time, invest in mortgage points. Bought at closing, each point is equivalent to 1% of the mortgage. These points lower total payments and interest. 

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8.  Refinance the Mortgage

If you are locked in a less-than-preferable mortgage, maybe it is time to refinance.  Refinancing entails modifying the mortgage life, re-assessing your home equity, and adjusting the interest rate. This option is good if you are in a more favorable financial position, be that having a higher income, less debt, or a better credit score. 

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For a more in-depth guide to refinancing, check out this article.

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Who Could I Contact to Learn More?

Following these eight steps will lower your monthly payments. To learn more about these tips, refinancing your home, or taking the next step to becoming a homeowner, contact Wesley Mortgage.

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