Though lenders’ mortgage qualifying rules differ, the following are some tried-and-true tactics for obtaining the lowest mortgage rates available:
A higher credit score
The greatest mortgage rates are normally held for creditworthy individuals who have a credit score of 680 or above. Lenders perceive borrowers with strong credit scores as lower risk.
With a credit score of 600 or higher, you are still likely to be accepted for a mortgage, but you may not be offered the lowest rates.
Manageable debt service ratios.
Lenders will carefully analyze two critical ratios when deciding whether or not to provide the best mortgage rates: the Gross Debt Service (GDS) and Total Debt Service (TDS) ratios.
Your GDS ratio is the percentage of your pre-tax household income spent on housing expenditures such mortgage payments, utilities, and property taxes. It should not exceed 32% of your annual overall income.
Your TDS percentage includes both your GDS and any other debts you owe (such as school loans and credit card debt). TDS ratios should not be more than 44% of pre-tax household income. The lower your ratios, the better your chances of getting the best mortgage rate.
Variable rates vs fixed rates
Fixed-rate mortgages often have higher interest rates than variable-rate mortgages. Borrowers have the certainty of knowing how much their mortgage payments will be for the remainder of their term in return for an extra fee.
Is the ideal mortgage rate one with the lowest interest rate?
Although it may seem counterintuitive, the “best” mortgage isn’t typically the one with the lowest annual percentage rate – but that is a great place to start.
When evaluating mortgage rates, you should examine fees, the terms and circumstances of your mortgage contract, internet connection, and customer service. In certain cases, lenders will compensate for low mortgage rates by charging higher fees, so it is crucial to analyze all of these factors.
Calculate your mortgage payment using mortgage rates.
Obtaining a current rate quote is crucial if you want an accurate estimate of your monthly mortgage payment.
Compare your borrowing capacity and total expenses for a five-year, fixed-rate $500,000 mortgage amortized over 25 years at 3% versus 4% interest.
With a 4% interest rate, you would have paid out the $500,000.00 principal + $289,030.31 in interest over 25 years, totaling $789,030.31.
With a 3% interest rate, you would still pay down the $500,000.00 principal, but you would pay $209,868.25 in interest, totaling $709,868.25 over 25 years.
Over the course of your amortization, a 1% difference in interest rate might save you $79,162.06. Using an online mortgage payment calculator is a quick way to compare pricing without doing a lot of arithmetic.
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