Before you can shop for a home loan, it is important to understand the mortgage rate. It refers to the rate of interest charged on a home loan program. The interest rate on your loan can make or break whether that a particular mortgage will be affordable for you or not. If the rate is too high, then it will create a big hole in your pocket and drain most of your money over the life of the loan. However, it will be not so, if the rate is low. And that’s why people try to get the lowest mortgage rate.
Though there are several known factors that can help you to get the lowest mortgage rates in Houston, some less known ones also equally contribute to the mortgage rate. Would you like to know what these are? Here, we have listed down a few for you –
- Loan term
Home loans with shorter terms generally have lower rates than those with higher terms. Mortgage lenders consider long-term loans to be riskier and in order to compensate for the risk, they charge for higher rates. The average interest rate for a fixed rate home loan for 15 years is lower than a fixed-rate home loan for 30 years. However, that does not mean that a shorter-term loan is always the ideal choice. So, go for the term that fits your needs before you compare rates. That way you will get the best interest rate on the right mortgage for you.
- Loan type
The loan type that you will choose may not seem as important as other factors. However, it influences on your rate. Some loan programs tend to have the lowest interest rates. FHA is one such example. FHA loans have more lenient down payment and credit standards, as well as their average interest rates have been typically less expensive than those of conventional home loans. But these loans might be the right option if you only have access to a small down payment and have a lower credit score. On the other side, VA loans are available to military service members and veterans, and they charge an upfront fee. However, they offer competitive rates for buyers. So, decide that loan type that can meet your needs.
- Discount points
Many mortgage lenders offer what are called “discount points,” or money the borrower can pay to lower their mortgage interest rate. Generally, one discount point is equal to 1% of the loan amount. Therefore, if you are borrowing a $200,000 loan, one point would cost you $2,000. In some cases, buying discount points makes sense. In case, you have that required cash and you expect to stay in the house for a longer than the payoff period, purchasing the points would be worthwhile. Otherwise, keep the higher interest rate.
While these are the less-known factors, the most crucial ones including credit score, down payment, loan amount, etc. So, if you have to consider both the known and less known ones to ensure lower mortgage rate for your home loan program.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.