5 Tips for Getting a Low Mortgage Rate in a Rising Rate Environment

Family going on porch in summerIn a rising interest rate environment, homebuyers can still score a low mortgage rate.

Here are 5 tips to help you obtain a good mortgage rate:

1. Put more money down. The more money you can put down upfront, the more likely a lender will be to approve your loan, and the more bargaining power you have in negotiating for a lower interest rate. As an added bonus, putting down at least 20 percent of a home’s purchase price will exempt you from having to pay private mortgage insurance (PMI). Borrowers who put down less than 20 percent must pay PMI which adds to the cost of their loan. A larger down payment can save you PMI and improve your chances of getting a lower interest rate.

2. Use your credit score as another bargaining tool. One of the smartest things you can do before looking for a home is to maintain an excellent credit score. Lenders analyze a prospective borrower’s credit history to determine their credit worthiness. The higher your credit score – a 3-digit number between 300 and 850 – the better your chances of getting the lowest interest rate. Anything over 750 is considered excellent. The best way to maintain an excellent credit score is to pay your bills on time, use less than 30 percent of your available credit, and do not open new lines of credit or close existing ones. If you have a good or excellent credit score, use it to your advantage.

3. Shop for a lender. According to surveys, half of all borrowers consider only a single lender. Applying with only one lender limits your chances of getting the best mortgage rate possible. Shop around.

4. Consider a 15-year mortgage. A 15-year mortgage has a lower interest rate than a traditional 30-year fixed rate. Your monthly mortgage payment will be higher because of the shorter term, but the total cost of your mortgage will be tens of thousands of dollars less.

5. Avoid an adjustable rate mortgage. ARMS generally are the lowest interest rates, but in a rising interest rate environment, your initial low rate can adjust up and your payment does too. If you know you will be staying in a home only for a short time – 5 to 7 years, for example – an ARM with its lower interest rate may be a good option. But in a rising rate environment, it is usually best to get into a fixed rate mortgage.

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