If you haven’t recently refinanced it’s pretty obvious you need to contact your favorite mortgage broker as you finish reading this—he or she definitely has a better deal for you. It took 50 years for rates to get this low. You probably don’t have the chance to wait for this opportunity to come around again.
In addition to the super low rates here are five tips to getting that mortgage payment even lower.
1. Improve Your Credit
The best way to ensure you always have the lowest mortgage rate and payment is to have a great credit score. That starts with knowing your credit score and monitoring its health on a monthly basis.
You can get a free copy of your credit report twice a year from Quizzle.com.
Working on improving your credit score to its maximum potential is the best way to ensure you get the lowest mortgage rate and payment.
Your ultimate goal should be a FICO credit score of 720 or better. You can still get a good mortgage rate with a lower credit score, but it will save you hundreds of dollars a month if you get that credit score above the 720 mark.
The good news is it’s not terribly hard with a little discipline. These four basics of credit management will get you most of the way to a great credit score:
- Always pay your bills on time
- Keep credit utilization under 50%
- Immediately dispute any inaccuracies
- Protect your credit from identity theft
Remember, if you don’t get a copy of your credit report and score you will be shooting in the dark.
2. Get the Best Mortgage
Now that you know your credit score…you do know your credit score, right? I’m amazed at how many people skip this step. Get your credit report and score!
Okay, now you’re ready to start shopping for a mortgage.
If you already have a mortgage you should start by talking you’re your current mortgage company. In all likelihood this will be your cheapest way to lower your payment, by minimizing closing costs. However, just like going to the doctor—you should always get a second opinion before going under the knife.
3. Avoid Private Mortgage Insurance (PMI)
The mortgage market has become more and more risk adverse. Gone are the days of putting zero or little money down on a home a getting a mortgage. Getting a mortgage in today’s market means putting 20% down or paying for private mortgage insurance (PMI).
The days are gone when you could avoid PMI by using a home equity loan or line of credit to avoid PMI and finance more than 80% of the value of the home. If you want to avoid this significant tax on your monthly mortgage payment then you need to save up a 20% down payment.
4. Get a Lower Interest Rate
If you haven’t refinance in the last six months to a year then your interest rate is probably too high. Remember how I started this article—mortgage rates at 50-year lows!
I’m not sure what else I can say about this other than find a mortgage lender and get a free review of your current mortgage financing or a quote on buying a new home.
5. Buy Points
Points are simply fees paid to the mortgage lender to directly lower your mortgage rate. It’s essentially a way to buy-down your interest rate.
The advantage is that you pay a little more upfront in closing cost in exchange for paying less (and getting that up front cost returned) over the life of the loan. Consequently, how long you intend to keep your mortgage becomes a very important part of the overall equation.
If you plan to sell your house or refinance your mortgage in the next couple of years buying points probably doesn’t make sense. However, in this market where you might be able to purchase in the most affordable housing market in recent history and lock in the lowest mortgage rate in 50 years—chances are you’re going to be happy to stay in this mortgage for the long haul.
Buying a new home or refinancing a mortgage is probably the largest financial decision you will make in your lifetime. Make sure you do everything you can to lock in the lowest mortgage rate and payment possible.