Here’s How To Find The Best 15-Year Mortgage Rates
Choosing to purchase a home is an exciting venture for any adult, but it’s also the largest financial investment most people make in their entire life. How do you determine the best way to stretch your dollar and snag the house of your dreams?
If higher monthly loan payments are in your budget, a 15-year mortgage is a great choice. With higher payments come lower interest rates, and the faster you pay off your loan, the less interest you’ll pay overall. Less interest equals more money in your pocket.
Think on a smaller scale: say you have a credit card with $100 dollars on it and a 10% interest rate. If you pay the card off in six months, you’d make six interest payments on that loan. If you pay the card off in three months, you’d make only three interest payments on the loan. On a smaller scale, the difference is under $20 – but on a $200,000 loan, you could pay over $100,000 in interest charges alone.
Rates have been dropping on 15-year mortgages for years. The lowest rates hit in 2015, at an average of 2.56%, so the time is ripe for future homeowners to land a great deal on their loan. Here are the essential tips to help you find a great 15-year mortgage…
Is A 15-Year Loan Worth It?
Start by determining the average rates in your area. Compare the interest rates on both 30-year and 15-year loans. Find the average rate for a 30-year loan, and then do the same for a 15-year loan.
Once you have an idea of the average rates on each loan type, look at what a few lenders are offering. If the difference in interest rates is small, it might not be worth it to commit to the higher payments that go along with a 15-year loan.
On the other hand, even if the interest rates on the 15-year loans aren’t that much lower, it shouldn’t be a deal breaker. There are other benefits to the 15-year loan. If you can swing those higher payments now, you’ll reap the benefits later, just like in the credit card example.
Big Banks, Small Banks, And Credit Unions Galore
Once you’ve made the decision to move forward with a 15-year loan, it’ll be high time to compare that loan type across several lenders. Put all your nearby banks into the possibility pool. The major banks will likely have very similar interest rates, but you might find one that’s just a bit cheaper, or one whose terms you like a little bit more.
Another option is to research mortgage loans through small local banks or credit unions. They might have even lower rates, although your loan approval may be subject to higher processing times.
Don’t Let Your Credit Score Get The Best Of You
You could march down to the bank to get preapproved for a loan at this point. Though this seems like the logical next step, there’s one other thing you should consider doing first. Before consulting with the bank of your choosing, find out what your credit score looks like.
Lenders want some assurance that you’re good for the money. If your credit score looks terrible, they’ll probably do one of two things: give you your walking papers or crank up the interest rate on your loan.
To avoid all that, find out your credit score before requesting preapproval on a loan. Even better, get a free copy from multiple credit reporting bureaus. Some options are Equifax, TransUnion, and Experian. Read and compare the reports. Sometimes there are errors (like old debts or debts that aren’t even yours), and those errors could mean the difference between being approved or denied by a lender.
If everything looks right on your credit report, but your score is still too low, there are ways to improve your standing. Pay your bills regularly and on time. Don’t open any new credit cards or complete any balance transfers. Most importantly? Pay down your existing debt.
The Gold-Standard Down Payment
Other than shopping around or choosing a small, local lender, there is another way to get a lower interest rate on your loan: put a larger down payment on your home. It won’t be easy, but paying a large sum of money upfront sends the message to your lender that you’re willing to invest in that home. More importantly, it encourages them to consider investing in you.
Many lenders require you to put down at least 5%, though there are programs out there that require as little as 3%, or no down payment at all. Typically, it’s to your benefit to make a larger down payment if you can and secure a lower interest rate.
The long-running, gold-standard down payment is 20%. If you can come up with that money, you’ll avoid paying monthly private mortgage insurance (PMI) premiums, which can be very expensive. Many people can’t afford to put down 20%, so the next best thing would be to pay down the principal as quickly as possible. Once you’ve paid off 20% percent of the loan, you won’t have to pay private mortgage insurance any longer.
If coming up with a significant down payment is out of the question, try looking into grants or down-payment assistance programs that aim to help low-income or first-time home buyers. The resources are out there to help you succeed and get you into a home of your very own.