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Interest Rate Reductions

Even though the market is what usually determines your mortgage rate, there are things you can do to save.

If you are borrowing more than is recommended by the Fannie Mae and Freddie Mac conforming limits, than you will be paying a higher interest rate. These conforming limits change every year, so make sure you find the current limits if you are purchasing a mortgage.

Shorter loans will save you on interest, but you will have to pay more each month. This sounds contradictory, but it makes since if you think about it. Since you have to pay it off faster, you have to pay more in a shorter amount of time. However, because you are paying the loan off faster, they will not charge you as much for the loan, meaning you will have lower interest charges.

If you really need a loan just to start off but are pretty sure you can pay it off after 15 years, a short loan is definitely the cheapest way to go. Some people purchase a longer loan because they figure it will be more beneficial to have less of a limit or deadline on payment, when in reality all they are doing is creating excess cost for unnecessary leeway.

Remember that if you want to reduce your interest rate, increase your down payment!
You will get the best interest rate if you pay over 20 percent for a down payment. If you pay five percent or less for a down payment, you will have less equity or collateral and, therefore, higher interest. In other words, you won’t officially own very much of your house, which makes you more of a risk to lenders and investors. They want to know that if you do not pay off your loan, they can take your home and will have some value to them. If you do not have much to give them upfront as “insurance,” then, as a result, they are going to wind up charging you more for their services.

Points, points, points. You’ve heard it before: Pay more points to lower your interest. All you need is a little extra cash, as buying points is fairly expensive. It will be worth it later, though, if you can come up with the change. Instead of ‘a penny saved is a penny earned’, here ‘a penny paid is a penny earned’.

Don’t forget closing costs. If you do not pay all of the closing costs, which are fees the lender charges you to process and distribute your loan, the lender will pay them. Good, you may say. No, not good. You know better than to think that the cost will just fly right out the window! What you are not paying to close, you will pay in interest.

Lastly, keep a good credit record and avoid debt. These factors play a large role in the interest rate you will be charged by a lender. If lenders are weary of your ability to pay off a loan, they will insure themselves. Their insurance is your interest. So, check your credit often and try to pay off all debt. You will be thanking yourself for the extra work when it comes time to purchase a mortgage for your dream home!

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