Mortgage interest rates can vary considerably between mortgage products and providers. Online comparison rates are published enabling you to see the different rates available and how much you can save on interest repayments over the term of the loan. However all the research in the world won’t help if the rates you see are not available to you, and there are two key factors which determine the mortgage interest rate you will be offered.
The first key element is of course your all important credit score. Just the difference of 100 points can greatly influence the amount you end up paying, which may be tens of thousands of pounds more than you need pay if your Fico score is excellent. At least six months before you consider making an application for a mortgage you should obtain copies of your credit reports and your credit score. Ensure that in this interim period you do not apply for any credit cards or loans but instead concentrate on increasing your score to the highest figure possible.
If there are any factual errors on your credit report, now is the time to get them corrected. However there is no option to remove accurate yet detrimental information. If you have a recent bad credit history it is not a wise time to apply for a mortgage as you will most likely be restricted to dealing with sub prime lenders at great expense.
What you can do to improve your score if it is only good rather than excellent is ensure that your debt to credit ratio is as low as possible; no new finance is applied for; and no old credit cards are closed. The length of your credit history is an important part of your credit score so always ensure you keep the oldest lines of credit open. Naturally ensure that any current credit obligations are met on time and if possible try to clear outstanding balances.
The second key factor which determines your interest rate is the size of the down payment you can make. The higher percentage of the property value you can pay, the better the rate of interest you will be offered. Anything under 20% is considered as more of a risk and requires the necessary payment of mortgage protection insurance, thus save as much as you can to put down in advance, with 30% being ideal.
These two key areas of credit score and down payment make the most difference in the interest rates available to you, and keep you away from sub prime lenders. If you happen to have poor credit and a low down payment it is worth considering that this may not be the best time for you to consider taking on a mortgage, and it would be better to wait until your finances are in better shape.
Assuming you are in a good position to apply then always consider the interest rate together with the fees associated with the mortgage, as these can add greatly to the costs. Comparison shop on line for the best lenders and rates, and opt for a fixed rate mortgage so that you have the stability of knowing what your payments will be and thus avoid any nasty surprises if interest rates rise. When you have identified the mortgage lender you wish to work with then never be afraid to negotiate for an even better rate.
Following these simple tips will allow for the best interest rates being made available to you, and thus save you thousands on the costs of your mortgage.