How to lower your interest rate on your mortgage

In a time when interest rates have been high compared to recent years, it’s important to understand other ways to lower your rate when you go to buy a home in Seattle. Finding ways to lower your interest rate can make a substantial difference in your overall homeownership costs. Here are a couple of tips we suggest to our Seattle buyers about rates and mortgages.

Please note that these tips are general considerations, and it’s important to consult with a qualified mortgage lender who can speak to your specific finances and the current rates.

1. Improve Your Credit Score

Your credit score plays a vital role in determining the interest rate you qualify for. Lenders use credit scores as an indicator of your creditworthiness, and higher scores generally result in lower interest rates. To boost your credit score, pay bills on time, reduce outstanding debts, and avoid opening new lines of credit. Regularly monitor your credit report for errors and discrepancies and address them promptly.

2. Shop Around for the Best Lender

Not all lenders offer the same interest rates or loan terms. Shopping around for the best lender can help you secure a lower interest rate. Consider working with various lenders and mortgage brokers to obtain multiple quotes and compare their terms and fees. Make sure to consider online lenders, credit unions, and traditional banks in your search. Need some lender referrals? We’ve got you! Email us for our list of trusted lenders.

    3. Pay Points to Lower Your Rate

    Mortgage points, also known as discount points, can be purchased upfront to lower your interest rate. Each point typically costs 1% of the total loan amount and can reduce your interest rate by a certain percentage (e.g., 0.25%). Calculate the break-even point to determine if paying for points makes financial sense for your situation.

      5. Negotiate to have the Seller Pay Points

      Consider this as part of the negotiations on the home you put an offer in on. An experienced real estate agent will be able to guide you through how to ask the seller to buy down your interest rate as part of your negotiations. The money from the seller goes to purchase discount points, and as mentioned above, those points lower your interest rate.

      4. Date the Rate, Marry the House

      Simply put, don’t sacrifice a home you love and a time in your life when you need to be in it, because rates are high. That home will continue to increase in value the longer you live in it. And as soon as interest rates go down, you can refinance to a more comfortable rate.

      5. Make a Larger Down Payment

      Okay, this can be easier said than done, BUT a larger down payment can help reduce your interest rate and monthly payments. Lenders generally view borrowers with more substantial down payments as less risky, which can lead to lower interest rates. If you are able to, saving for a larger down payment can improve your chances of securing a favorable rate.

        6. Opt for a Shorter Loan Term or an ARM

        While a 30-year fixed mortgage offers lower monthly payments, choosing a shorter loan term, such as 15 or 20 years, can result in a lower interest rate. Shorter-term mortgages often have lower interest rates as lenders take on less risk.

        Another considerations is an adjustable-rate mortgage, which typically offers lower initial interest rates compared to fixed-rate mortgages. Unlike fixed-rate mortgages, where the interest rate remains constant over the life of the loan, ARMs offer a variable interest rate that changes periodically. Typically, ARMs start with an initial fixed-rate period, often lasting 5, 7, or 10 years, during which the interest rate remains stable. After this initial period, the rate adjusts periodically, usually annually.

        Ready to take the next steps?

        Even with higher interest rates, buying a home in Seattle can be competitive. We’re here to help connect you with the appropriate home-buying tools and resources. The first step is getting your finances in order to meet with a lender for pre-approval. Then we’re off to the races home hunting! Click here to read more about our home buying services, or email us to our homebuyer essential checklist.

        Always consult with a financial advisor or mortgage expert to make well-informed decisions that align with your unique financial goals and circumstances.

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