Getting a fixed-rate home loan usually means paying relatively higher interest than adjustable-rate mortgage borrowers would. Unlike ARMs, fixed-rate home loans come without a “honeymoon period”. The lack of discounts is the price for having unchanging monthly housing payment throughout the loan’s term.
But then again, you wouldn’t be necessarily doomed to pay greater interest by taking out a fixed-rate mortgage, according to Primary Residential Mortgage, Inc. You can use different strategies to negotiate for a better deal. Increasing your credit score, lowering your debt-to-income ratio, proving you have employment and income stability, and paying a large down payment are the usual tricks to convince your lender to grant your wish.
But if you already tried them and received unsatisfactory results, you might win your next round of negotiation if you do the following:
Choose a Single-Family Home
Compared to condominiums and townhouses, most lenders consider single-family detached houses less risky security. During housing market crashes, single-family properties are the least affected. Since mortgage rates are based on risk, your chosen type of property can affect the interest on your home loan.
Buy It Down
Using mortgage points at closing can help reduce the amount of interest you would have to pay throughout the life of your loan. They’re a form of prepaid interest; you can use them to shave your mortgage rate off.
However, they affect the “true cost” of your mortgage, so do the math first before deciding to pay for them. If helps to think about how long you intend to live in the house you plan to buy to see whether this move makes financial sense.
Be Certain When You Can Close
Most lenders allow you to lock a particular mortgage rate to protect it from market forces over a specified time. Shorter lock-in periods, though, generally provide more interest savings. To lock an interest rate in for as low as possible, make sure you can close fast.
Don’t Pay Taxes and Insurance Yourself
A typical monthly mortgage payment includes property tax and insurance payments. While you might have the option to pay the taxes and insurance on your own, doing so could render your home loan application riskier. In turn, you might get penalized with higher interest.
Savvy fixed-rate mortgage owners enjoy lower interest rates because they don’t play their cards right. If you wish to do the same, do your research and exercise due diligence to project yourself as a less risky borrower.