Mortgages: 6 Strategies to Offset a High Interest Rate

Stack of cash over contract documentThe interest determines the real cost of your home loan. The bad news is that, for the most part, the lender figures out the mortgage rate you qualify for. The good news is that you can put yourself in a favorable position to negotiate for a lower one. Since nothing is set in stone until you sign on the dotted line, consider these strategies to offset a high interest rate:

1. Pay a Large Down Payment

You’d be hard-pressed to find an Arizona, Nevada, and Utah home loan that offers 100% financing these days for good reasons. Your loan-to-value ratio is one of the factors that establish the interest rate you’re eligible for. Experts at the Altius Mortgage Group note that the more you shell out for your property up front, the less risk your lender has to take. In turn, lower interest can serve as your reward.

2. Use Mortgage Points

If you intend to keep the house over the long haul, it might make sense to buy down your interest. Paying discount points at closing allows you to reduce your mortgage rate to some extent over the life of your home loan. Generally, one point costs $1,000. Crunch the numbers first to see whether prepaying interest is worth your while.

3. Increase Your Credit Score

Lenders judge borrowers based on FICO credit scores. If yours is below 760, you could continue building your creditworthiness to unlock better mortgage deals later on.

4. Eliminate Debts

Your debt-to-income (DTI) ratio is another percentage lenders pay close attention to. To qualify for a mortgage, your monthly debt payments shouldn’t eat over 43% of your monthly income. The lower your DTI ratio, the greater confidence you inspire among your prospective lenders.

5. Don’t Quit

Solid employment history is a non-negotiable requirement to get your mortgage application approved and secure attractive interest. Normally, you should prove to have a steady source of income for a minimum of 12 months. Unless you’re switching jobs for a higher position and better pay, avoid quitting your current work.

6. Save Up

Not to be confused with your down payment, your cash reserves serve as your contingency fund in case you lose your primary source of income. Any lender would want to proof of your liquid assets before granting your loan application and lower interest request. This way, the other party wouldn’t lose sleep when you suddenly become jobless at any point during the term.

Like everything else, mortgage rates are negotiable. If you play your cards right, you can buy the property you like and save a lot on interest at the same time.