Methods of Getting Better Deal on a Loan (Method 1)

1.Researching Interest Rates

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1. Watch interest rates. The easiest way to get a lower rate is to wait until the interest rates on loans across the board are at low levels. Interest rates fluctuate a great deal, sometimes even during the same day, but there are times when they are simply lower than at other times. Sometimes periods of low interest rates also see increased home prices, so keep this in mind.

• You can speak with your bank about current interest rates on loans and ask their opinion about if now is a good time to buy.^[1] 

 

2.Speak with different lenders. Mortgage rates for the same person can differ widely from lender to lender, so explore your options. Talk to different banks, credit unions, and brokers in your area. If you belong to a credit union or if you've been with a bank for a long time, you'll often find your best rates there, though it's still a good idea to check around.

• A mortgage broker, who sifts through many lenders, may be able to find you the best rate. On the other hand, a lender, like a credit union, does not have to cover the overhead of a broker, and you may find lower rates with them.^[2]

 

3.Avoid an adjustable rate mortgage (ARM). Mortgages generally come in two flavors: fixed or adjustable interest rates. Fixed rates lock the borrower into a consistent interest rate that the borrower pays throughout the course of the loan. The part of your mortgage payment that goes toward principal and interest remains the same, though insurance and taxes may fluctuate.

• With an adjustable rate mortgage (ARM), the interest charged fluctuates during the life of the loan. You begin with an introductory period of ten, five, or even one year where the interest rate is locked in (usually at a pretty low rate, which is what attracts people to this type of loan), and then after the introductory period your interest is calculated based on a standardized index such as the “prime rate.” While you may like the idea of a low introductory interest rate with an ARM and even though there is a cap on how high the interest rate can be raised to,^[3] be aware of the likelihood that your interest rate will increase substantially in the future and increase the total cost of your loan.^[4]

4.Consider paying for points. In banking terms, a point is an upfront fee equal to 1% of the total mortgage amount that you’d pay in order to lower the ongoing interest rate by a fixed amount (usually 0.125%). A lender can also use negative points – in other words reduce their fees in exchange for a higher ongoing interest rate. Paying for points usually makes sense if you plan to keep your loan for a long time because you’ll end up with a lower ongoing interest rate.^[5]

 

5.Consider the life of the loan. The most common loan terms are 30-year (lowest monthly payment), 10-year (highest monthly payment), and 15- or 20- year (between the two). Even though the 30-year plans have the lowest monthly payments, you pay more in the long run because interest rates are higher for longer loans.

• You will get a better deal by taking out a shorter loan because you are paying less in interest, so you should consider how much you can comfortably pay each month and see if a mortgage shorter than 30 years is possible for you.^[6]

6.Know the questions to ask yourself. Ask yourself the following questions when determining which loan offer to take after you have shopped around:

• Is the interest rate fixed or adjustable?
• Do I need to pay points or are there other fees with the loan?
• What is the term of the loan?
• How much will my payment be? Are there other costs such as broker and title search fees added onto my monthly payment?
• May I repay the loan early without penalty?
• Will the payments change over the life of the loan? How high can it go?
• How much do I need to put down?
• Does the written offer match what I was told about the loan?^[7]

 

 

 

 

 

 

^{Sources and} Citations

 

1. ↑ https://www.discover.com/home-loans/articles/top-10-home-loan-tips
2. ↑ http://www.consumerfinance.gov/askcfpb/137/how-do-i-find-the-best-loan-available-when-im-shopping-for-a-home-mortgage-loan.html
3. ↑ https://www.wellsfargo.com/mortgage/loan-programs/fixed-adjustable-rate-mortgage/
4. ↑ http://www.nerdwallet.com/blog/finance/mortgage/faq/get-the-best-mortgage-rates/
5. ↑ http://www.nerdwallet.com/blog/finance/mortgage/faq/get-the-best-mortgage-rates/
6. ↑ http://www.bankrate.com/finance/mortgages/3-basic-types-of-mortgage-loans-1.aspx
7. ↑ http://www.consumerfinance.gov/askcfpb/137/how-do-i-find-the-best-loan-available-when-im-shopping-for-a-home-mortgage-loan.html
8.  pic 1. http://pad3.whstatic.com/images/thumb/4/46/Get-a-Better-Deal-on-a-Home-Loan-Step-1-Version-2.jpg/670px-Get-a-Better-Deal-on-a-Home-Loan-Step-1-Version-2.jpg