Finding The Best Interest Rates on Mortgages

Kishan Thakkar K

Introduction

If you’re planning to buy a house, you must have thought of getting the benefits of the lowest mortgage rates. The changes in the mortgage rate will affect the principal amount in the long term. There are ways to find the best mortgage rates. The most obvious way to do this is to calculate the mortgage rate using the loan amount, tenure, etc. 

The mortgage rates vary from lender to lender as well as within areas. Various factors affect the mortgage rates. Choosing the best mortgage rate can be one of the profitable decisions you’ll ever make.

Mortgage rates are influenced by credit score, LTV ratio, inflation, and more. Some of the factors are within your control and some aren’t. With the awareness of these factors, you can be assured of getting the best mortgage rate.

Below are the factors that affect the mortgage rates

1. Overall economy

Mortgage rates tend to rise when the outlook is for higher inflation and rapid economic growth. Inflation rates contribute to the inflation rate. The higher inflation rates contribute to the higher interest rates.

2. Amount of loan

The LTV ratio (Loan-to-value ratio) determines the mortgage amount with the home’s price.

Let’s say you make an Rs. 8 lacs down payment on a house of Rs. 40 lacs. the mortgage will be Rs. 32 lacs. You’re borrowing 80% of the home’s value, so your LTV ratio is 80%. A high LTV ratio may result in higher mortgage rates.

3. Credit score

All lenders look at the credit score. generally higher the score, the lower the interest rates. The best credit score will qualify you for the best rates.

Tips to find the best mortgage rates

1. Use a mortgage calculator

A mortgage loan EMI Calculator allows home buyers to assess their repayment capacity via quick EMI (Equated Monthly Instalments) computation.

You need to know few essential details to assess the EMI amount, like – 

1. The amount of loan you need to avail

2. The mortgage loan interest rate

3. An appropriate tenure for loan repayment

The EMI calculator is a tool that helps the individual to assess. You can assess your EMI suitability by below two parameters,

1. Decide the loan amount. This affects the EMI value proportionately

2. Decide the tenure value. This affects an inversely proportional installment value.

2 Improve your credit score

A low credit score can lead to a sure shot rejection of the application. The credit score is known as the CIBIL score which is a 3-digit number. It ranges from 300-900 and is calculated from below four factors.

Each of them has a weightage.

Payment History – 30%,

Credit Exposure – 25%,

Credit Type and Duration – 25%,

Other Factors – 20%

The ideal CIBIL Score for the home loan & loan against property is above 650. For more information about CIBIL score, please click here.

3. Make at least 20% down payment

This is another way to get the best mortgage rate. The higher down payment could lower the interest rates. As a general rule. you need to make a down payment of a minimum of 20% of the value of your home to get the best mortgage rates.

When the down payment is less than 20% of the purchase price. you’ll have to pay Private mortgage insurance (PMI). Purchasing mortgage insurance is the safety factor.

4. Keep your income stable

Keep your employment steady when applying for a loan. Ideally, lenders choose who have had the same job for at least two years. A lender wants to minimize the risk, they tend to prefer those who have higher income and stable jobs. Generally, the higher income indicates the low debt-to-income ratio, lender tends to offer you a lower rate.

5. Debt to income ratio

DTI ratio measures how much of your income goes toward monthly debts. A low DTI ratio shows your creditworthiness. A lender generally seeks a ratio of less than 36%. The DTI of 43% is the highest ratio a borrower can be qualified for a mortgage. In simple words, if your DTI ratio is 14%, that means that 14% of your monthly gross income goes to debt payment. 

DTI = Total of Monthly Debt Payment / Gross Monthly Income

6. Compare multiple lenders

Once you’ve done your research, have a decent credit history, calculating the monthly mortgage rate that you can afford, you’re ready to start applying for a mortgage. The key to getting the best mortgage rate is to get the rates from multiple rates. rates can vary from one lender to another lender. the lender is required to give you a loan estimate consisting of the loan’s interest rate, closing costs, along with the other key details. It’s important to compare a few lenders, before deciding.

7. Choose a shorter loan term

You can save huge money if you choose a 15-year mortgage instead of a 30-year mortgage. The mortgage rates are much lower in the shorter term. Although the shorter terms come with higher monthly payments, you can potentially save huge money in interest over the life of the loan. 

Conclusion

The above are some of the tips for getting the best mortgage rates for the home loan application. In the end, it is your responsibility to do the proper homework. Ensure all the paperwork to be up to date and as stated by the lenders before approaching the lender for a home loan application.

For any queries and suggestions related to it, contact us at info@roodland.com and discuss all of your options with an experienced real estate professional.

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