With the soaring cost of living, the interest rates on mortgages are also increasing as a strategy to curb inflation rates. The rising interest rates mean expensive mortgages. Refinancing a home will not work in your favour, as the standard variable interest rates will be charged as per the base rate, let alone a first-time mortgage.
If you are looking to get onto your property ladder, you cannot wait too long in the hope that home prices will go down. However, some ways can help you qualify for a mortgage at lower interest rates.
Some vital suggestions to avail of low-interest home mortgage loans
Put down a bigger deposit
You cannot qualify for a mortgage unless you put down a deposit, which is at least 10% of the sticker price of your house. A few lenders might accept your application even if you have just a 5% deposit, but the criteria could be stricter. Putting more money toward the down payment of your house will help you avail of lower interest rates as this will whittle down the loan-to-value ratio.
A higher down payment moderates your lender’s risk, and therefore, they become willing to approve your mortgage at more affordable interest rates. You will be perceived as a safe borrower when you put down a larger deposit. Try to pay at least 20% of the sticker price of your house upfront. It is even better if you make it a bit higher.
Strengthen your financial profile
Your down payment is not enough for you to avail of mortgages at the most possible interest rates. Bear in mind that mortgage lenders keep the best deals reserved for borrowers with the best credit score. Not only are mortgages expensive, but they will keep you tied to the debt for a very long period of time as well.
There is no assurance that your financial circumstances will remain as strong as it is today. A mortgage lender will evaluate all aspects to decide if you are a potential borrower. They will not sign off if they find any chances of default in the future, and your credit score plays an important role in gauging the default risk.
You should have a strong credit rating. A few lenders can provide you with a mortgage despite a bad credit rating, but they will charge very high interest rates. You may find it extremely tough to keep up with payments. In order to get low-interest home mortgage loans, your credit score should be good. You can get even more affordable interest rates if your credit score falls in the “excellent” category. Here are ways to help do up your credit rating:
Check your credit report from all three credit reference agencies, as you never know which report your lender will get to use. Do not fight shy of paying money to get a report, as fees are not so high.
Look out for any mistakes such as unidentified credits, wrongful entries of defaults, missed payments and the like. Dispute those errors. Make sure to have them fixed before you apply for a mortgage.
Pay existing debts on time. Do not keep a balance on your credit cards. Avoid having any outstanding debt because it will increase your debt-to-income ratio.
Do not apply to multiple lenders at the same time because multiple inquiries can brutally ding your credit points.
The stronger your credit score, the lower the interest rate will be. Do not forget to have a strong repaying capacity, too.
Take the help of a mortgage broker
You can go to your bank or a private mortgage lender and directly ask them if you need a mortgage. They will undoubtedly help you get it, but you might end up getting an expensive deal. You can get a way cheaper deal if you consult a mortgage broker.
Finding a whole-of-market mortgage broker can be a bit tricky, but you can come through with some research work. A broker will have a lot of lenders, so you will more likely get introduced to a lender that matches your requirements.
They will charge interest rates, offer the loan amount, and set the repayment length that matches your financial circumstances so you do not face any difficulty paying down the mortgage. The greatest benefit of using a mortgage broker is that you can get advice on ways to do up your profile so you can get lower interest rates.
Negotiate with your lender
One of the ways to get a lower interest rate on your mortgage is to increase your deposit size, but remember that it is not that effective unless you have a good credit score. If you already have a less-than-perfect credit rating, you should put at least 20% of the sticker price toward your down payment.
However, when your credit score is above par, and you are also paying down a higher deposit, you should push your lender to take a further bit off the interest rate. You should try to get the quote from the other lenders as well. You will certainly see a variation in their interest rates.
You can use your research work to compel your lender to decrease interest rates. Of course, a lender will not let you go. In addition, you can ask them if there is any other way to get a discount.
The bottom line
Getting low-interest home mortgage loans is very complicated, especially if your credit score is not up to snuff. You should strengthen your overall profile and put a larger deposit into the bargain. Increase your income to show that you will keep paying off the debt smoothly.