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  • lower mortgage rates

    With real estate prices plummeting across the country, this may be the best time in years to be in the market for a new home. Getting a great price on that new dream home is a reward in itself - but if you can couple that sweet deal with a lower mortgage rates, you'll save even more money. Not sure how to get the lowest mortgage rates available? Here are some tips to point you in the right direction.

    The higher your credit score, the lower mortgage rates

    Your credit score is a numeric representation of the risk a bank or lender takes in lending to you. A high credit score means that you're a good risk, and most lenders will extend their lowest interest rates to you. If you don't know your credit score, this is the time to get your credit report and find out what's on it.

    Thanks to legislation passed a couple of years ago; you can get your credit report for free once a year from each of the three major credit reporting agencies. You can order your free credit report online.

    Take the opportunity to clean up your credit report - and maybe boost your rating. If there are mistakes on your credit report, write to the agency to have them corrected. Be sure that you provide proof of the corrections you want to be made - if you've paid off a credit account that is listed as unpaid, for instance, send a copy of the bill showing it paid off.

    Paying down some of your credit cards will also help increase your credit score by lowering your debt-to-credit ratio. If you decide to cancel credit cards, though, be careful which you choose to cancel. Hang on to older credit accounts because they'll affect your credit score positively. The longer you've held the account, in fact, the better its effect on your credit rating on lower mortgage rates.

    Check around to find out if you qualify for any special mortgage programs. First time home buyers may qualify for special lower mortgage rates through government loan programs. If you qualify for a fist time home buyers' program, you may be eligible for a loan with interest rates as low as 2.5% on a 30 year mortgage.

    Shop around for the lowest mortgage rates. Every lender has its standards for determining the lower mortgage rates that they'll offer - and very few offer the same mortgage rate to all comers. The only way to be sure that you're getting the best mortgage rate available to you is to get several quotes from different lenders. That will give you a basis for comparison - and for bargaining.
    Check with your bank first. Be sure to look into a mortgage from your bank. Many banks offer lower mortgage rates to good customers, and some offer even lower rates if you agree to an automatic deduction from your account for your mortgage payment.

    Make a larger down payment

    A larger down payment will reduce the amount of your loan, and could reduce your interest rate as well. If you can manage to put 20% down on your mortgage, most lenders will offer you a lower mortgage rate than if you put down less money. 

    A higher down payment makes you a better risk for a loan because the bank figures that you "have skin in the game". Statistics show that borrowers who have more equity in their homes are far less likely to foreclose because they stand to lose a lot more.

    If you can afford a higher monthly payment, opt for a shorter mortgage term. It's a basic rule of thumb. The less time you take to pay off your mortgage, the less interest you'll have to pay on the money you borrow. While opting for a twenty-year mortgage instead of a thirty or forty years one will mean higher monthly payments, you'll save tens of thousands of dollars over the course of the mortgage, and will almost certainly be offered a lower mortgage rates.

    Pay for points on your mortgage. Another way to reduce the interest rate on your mortgage is to pay for points up front. In essence, paying for points is paying the interest on your mortgage up front. A discount point on your mortgage will usually reduce your mortgage rate by 0.125 percent, so if you've been offered a mortgage rate of 7.5% and pay two points on it, your interest rate could drop to 7.25%.

    That drop will lower your monthly mortgage payment and possibly decrease the overall cost of the loan. Paying for points makes sense if you're going to remain in the home long enough to benefit from the lowered interest rates.