How to Get the Interest Rate on Your Home Loan?

March 15, 2024

With the rising cost of property each day, it is a wise decision to buy your home with financing options given by mortgage brokers and banks. As the monthly repayment can take up a big part of your earnings, you need to choose the right lender offering a competitive interest rate that works in your favor. 

In this blog, we’ll talk about how you can determine your interest rates and get the best out of it. So read it till the end for proper understanding. 

How to Know Your Mortgage Interest Rate?

mortage loan

The mortgage brokers take account of the applicant’s financial records and CIBIL score to determine the rate of interest. The standard mortgage rate lies between 6%-7%, but it can go up according to the CIBIL score. People with excellent scores (720-850) can get the lowest interest rate compared to people with fair scores below 630. 

Apart from that, lenders also consider the applicant’s debt-to-income ratio to calculate the percentage of gross monthly income that goes towards debts. 

The most important thing is the loan-to-value ratio which measures the mortgage amount compared to the valuation of the property you are planning to purchase. Let’s say, the price of a home is $100,000, you are making a down payment of $20,000 so you need to borrow $80,000 from the lender and decide the tenure to complete the repayment. 

Short tenures generally have a lesser rate of interest than longer tenures. 

What are the Factors Determining Home Loan Interest Rates?

The interest rates are a major influence affecting the monthly payments for home financing. There are several factors that play a part. Let’s discuss them here.

  • Credit Scores: Consumers with higher scores get low-interest rates compared to consumers with low scores. The FICO score allows the lender to determine how reliable the applicant is in paying the loan. These scores are calculated based on the credit report that shows your complete financial record. 
  • Location of Property: Many lenders offer different rates of interest based on location. Each state may have contrasting rates. To know the correct statistics, you need to contact various lenders and understand their charges. You can search and find the best mortgage brokers in Canberra and other states to do your research. 
  • Interest Rate Type: There are two types of interest rates: Adjustable and fixed in the home financing. The rate of interest is generally lower for the initial period in an Adjustable-rate loan, but it can significantly go higher and lower depending on the market. 
  • Down Payment: The rate of interest is mostly lower if you make larger down payments. The lenders look at the lower risk when you have the majority of stake. If the applicant puts 20% or more, the lenders offer a comparatively low rate of interest. 
  • Income Source: Lenders consider the employment history and income stability while determining home loan interest rates. Applicants with stable incomes and good financial profiles have a higher chance of qualifying for low-interest rates. 

So these are the factors that banks and mortgage financing companies consider while determining the interest rate of each applicant. Please note that market and inflation play a vital role, so it’s better to keep an eye out for the better and get financing at the right time. 

Moving ahead, let’s discuss how to get the best interest rates on mortgages in this competitive and fast-growing market. 

How to Get the Best Mortgage Interest Rate?

You can definitely get the best mortgage rate by knowing your needs, and what kind of lender you are searching for. However, there are several steps that you can take on your part that can significantly improve the rate you are offered, potentially saving thousands of dollars. Let’s discuss this here.

  • Strengthen Your Financial Record: The number one way to get the lowest interest rates is by having a solid CIBIL score. You can grow your scores over time by paying the bills regularly. By paying off the debts, you can prevent the credit utilization ratio from going up.

    With monthly evaluation, you can improve your profile which will help you qualify for low mortgage rates.

  • Make a Larger Down Payment: It is always good to save up at least 20% or more of the home price for the down payment. The larger sum allows the institution to gain the trust of the borrower. The big amount lowers the loan-to-value ratio, which is also the mortgage interest rate. 
  • Home Buying Programs: Before settling for the mortgage, you can explore various programs that make buying a home less costly. Many lenders and banks run special programs, especially for first-time buyers and women owners. The mortgage rate under these special programs is much lower compared to the market.

    Not just that, there are several mortgage programs for specific occupations like government officers, teachers, and doctors that you can apply for and take advantage of. 

  • Look Out for Various Lenders: You definitely wouldn’t buy the first house you saw, similarly, you shouldn’t go with the first lender you came across. Shop around, explore the market, and understand the current scenario. If you already have a lender that is willing to give exclusive discounts and better interest rates, you can take a loan from them. 

Else, you can apply for pre-approval from multiple lenders and compare the quotes to find the best one. 

So these are the few methods that will help you get the best mortgage rate for your dream house. Make sure to keep all the factors in mind and gain all the insights of the present market. We hope this blog will be helpful to you. Share it with your friends and family who are on the hunt for a new home.

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