Even if you've had your current mortgage for years, you can always get a better rate. Many people think that once they sign the papers, their mortgage interest rates are set in stone, but each year, hundreds of thousands of people negotiate better rates. The smart homeowner knows that if they pay attention to the market and their credit profile, they could save thousands over the life of their mortgage.
Most people think that the price they paid for their home is the magic number that they pay each month. They think they paid $150,000 for their house, but they have actually paid much more than $400,000 over the course of a 30-year loan. Anyone who has dealt with mortgages for any length of time will tell you that it's all about the interest.
Most of your monthly payment will go toward interest rates for the first few years. It's not unusual for only a few dollars of your monthly payment to go toward your principal (the amount you borrowed), while the rest goes toward interest. Yes, you are paying someone to use your money to make money for them. The interest rate you pay on your mortgage determines not only how much you will pay in interest over the life of the loan, but also how much you will have to pay each month. Mortgage companies want to make as much money as they can, since in some cases they are taking on a 30 year risk.
So what should a smart buyer do? You can get a better rate on your mortgage in more than one way. Here are some tips to help you lower the interest rate on your loan, whether you just bought a house or have been making payments for years:
"Compare prices. Never go to just one mortgage company when you want to buy a new home or refinance. Talk to at least three mortgage companies and let them know you are shopping around. If they know you're looking at other mortgage companies, they know you're serious about getting the best deal possible, so they'll make you an offer that's as good as any other.
"Make sure that your mortgage changes as your credit score does. You might have been struggling as a new worker with a low credit score ten years ago. You are now a very successful businessperson. So why do you keep paying the same rates you did 10 years ago? Consider refinancing to take advantage of lower rates as your credit score and personal finances improve. Even a small drop of half a point in your rate can save you thousands of dollars over the course of your loan.
"You can get a better rate if you pay a few points up front. You can sometimes buy points up front to help lower the rate. If you plan to live in your house for many years, this is often a good idea because the price you pay up front is usually more than made up for by the interest you save over the life of the mortgage.
"If interest rates go down, go down with them! When the Federal Reserve lowers the prime rate, interest rates tend to do the same (though not as much). If you bought your house when rates were high, you may find that you can now refinance to take advantage of rate drops of a full percentage point or more.
