When you’re shopping for a mortgage, you want to get the best possible interest rate – but how do you do that?
What Determines Interest Rates?
Your credit score and the market typically determine what interest rates you’re eligible for when you apply for a mortgage loan. However, there are a few things you can do to change your rate.
Here’s why interest matters so much. A $100,0000 loan with a 5 percent interest rate will cost you $93,256 in interest payments – but if you had a 4.5 percent interest rate, you’d pay $82,407 in interest over the life of your loan. That’s a savings of $10,849.
How to Lower How Much You Pay in Interest
- Improve your credit score. The higher your credit score is, the lower your interest rate will be.
- Pay points. Discount points are equal to 1 percent of the loan amount, and in many cases you can use them to buy down your interest rate.
- Put down more money. The higher your down payment is, the less you have to borrow – and your down payment is tied to the interest rate you’ll get.
- Shorten the term of your loan. Your loan is shorter, so you’ll end up paying less money in interest.
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