Mortgage Loans Rates

The credit crunch of 2008 and 2009 ended the era of freewheeling, totally unregulated mortgages. The idea that handing out a loan to just anybody was “safe” because the house they bought with it was sure to surge in value was shown to be foolish at best, dangerous at worst. While certainly reasonable an, in the long run, good for business, this crunch means that first-time home buyers and persons with sketchy credit histories find that it is increasingly difficult to get a mortgage, or at least get one which conforms to their needs for their house. So how are potential homebuyers to get a favorable mortgage in this day and age?

The first step is to have a good credit rating. The means by which credit ratings are determined is kept proprietary, but in general it goes up when a person repeatedly takes out and then pays back loans, such as when one regularly racks up a balance on a credit card and then pays it off at the end of the month. Another good example is when a person takes out a loan to buy a car and then never misses a payment. Some credit rating agencies even look into a person’s ability to pay off layaway plans and avoid late fees for phone, Internet and electricity bills. In general, these ratings are used to determine if a person has a history of paying on time and in full, and most responsible people have a very good credit rating. People with a good credit rating are considered low risk, and so banks are more likely to lend to them, and to do so with very low, favorable interest rates.

However, it is possible for a person’s credit rating to be ruined by a bankruptcy, a foreclosure, or a nasty divorce. How is a person with a bad credit history to get a favorable rate on any mortgage loans? One of the best ways to do this is to have a large down payment on the property to be purchased. This not only decreases the amount the bank needs to lend out, thus making them more likely to do so, it decreases the amount that the loan will “cost” both the borrower and the bank. This makes the bank willing to give a more favorable mortgage rate.

In some cases, it is also possible to increase one’s credit rating by removing errors, mistakes or shortcomings from one’s credit report. Credit reports almost always contain a few errors, since they are very large, complex, and may be difficult to verify. There are many companies that ostensibly claim to eliminate major problems that actually did occur, however this is in fact not legally possible, and such companies are generally frauds. Legitimate removal of legitimate errors, however, can often create a much more favorable bank loan rate.

It is also a good idea for those interested in a low rate mortgage loan or a low rate bank loan to shop around. Many banks offer differing rates of interest on almost exactly the same financial products due to a number of factors, including the bank’s relative solvency and their exposure to risk. Historically, large banks, such as those headquartered on Wall Street, offer an inferior mortgage interest rate to homeowners when compared with small local banks. This is because their primary interest is in commercial enterprises, such as those which own and operate in very large buildings. Community banks and credit unions not only offer superior rates on their mortgage loans, they are often the recipients of state and federal funding, as well as charities, geared towards putting a person in a home.

The last and most important way to ensure a favorable rate on a mortgage loan is to carefully read, discuss and haggle over any loan contract before signing it. If a borrower has a lawyer whom they can consult, they should. Many of the so-called “predatory” loans of the 90s and early 00s were known to offer a favorable rate at first, which leapt up to an unfavorable rate over time. Buyers should beware such mortgage loan rates, since they can make a fair and affordable loan unfair and impossible to pay off overnight. Fortunately, most banks no longer make these loans, but homebuyers should still haggle over the mortgage rate and take competing offers from other banks to try and drive down the price.