Shopping for the best rates
The New York
Times
Interest rates are the
lowest in decades, enticing many borrowers to shop for a loan. Mortgage
lenders adjust their rates based on perceptions of risk, so unless the borrower
can show they’re a low-risk individual, the borrower is unlikely to qualify for
a rate that matches those seen in recent advertisements and headlines.
Making sense of the
story
- The rates quoted are
averages drawn from a variety of financial institutions, and lenders use
varied approaches to set them. Consumers who want to try for the
lowest rates available need to consider basic factors, such as credit
score, points, property type, down payment, and length of the loan.
- Credit score: The ideal
borrower has a FICO score of 740 or higher, which puts the individual in
the best place for pricing.
- Points: The lowest rates
usually are decreased by paying a fee called a point, or 1 percent of the
loan amount. Borrowers may buy points in order to get the best rates
at many banks. Points might make sense depending on the borrower’s
financial situation and how long they expect to stay in the home.
- Property type: Borrowers
planning to buy a duplex or a four-unit build likely will have a higher
interest rate. Condominiums also may have a rate premium rate,
especially if they are newer or the down payment is less than 25
percent. Lenders also may charge more if the borrower is not
planning to live in the home.
- Down payment: Borrowers who
put down at least 25 percent are more likely to obtain the best interest
rates. Lenders offer different breaks on rates if equity in the
property is higher, so borrowers should ask what is available.
- Length of loan: Borrowers who are likely to
move in a few years may want to look into an adjustable-rate loan with a
low interest rate fixed for a few years, and adjusted afterword.
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