If you want to purchase a house, you will probably have to take out a mortgage. There are only a few people who have enough cash to purchase a house outright, so most will go to the bank for a loan. How do you know if the bank is giving you the best possible interest rate? Unfortunately, the bank does not always give you the best interest rate because the bank is looking for a way to make money. If they can get you to accept a higher interest rate, they will make more money on your home loan. What are some of the factors that dictate interest rates on loans, and how can you say money?
Bank Rates Are Dictated By Investors
In a lot of cases, mortgage rates are not necessarily dictated by banks, but they are dictated by investors. Many banks want to remove the risk of someone defaulting on their home loan, so they will sell the debt to an investor. This is a way for the banks to free up capital they can use to invest in other projects. Sometimes, the mortgage rates are dictated by the amount of money investors are willing to pay for this type of debt.
Interest Rates Are Always Forward-Looking
In other cases, banks will charge a higher interest rate because they are worried that rates will rise in the future. Essentially, the pricing on home loans right now is dictated by what banks think interest rates will be in the future. If the bank thinks that interest rates will go up, then it might raise interest rates now to hedge its risk.
How You Can Get A Better Interest Rate
There are a few ways you can get the bank to give you a better interest rate. First, make sure your credit report is in order. Maximize your credit score to get a better interest rate. Then, make sure you have enough money to put down. The more money you put down, the lower the interest rate you will get. Finally, ask about discount points. You might be able to pay some of the interest upfront in exchange for a lower interest rate over the life of the loan.
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About the Author:
Babak Moghaddam graduated from University of Southern California in 1985. He entered the mortgage industry as a compliance auditor at the Bank of New York in 1986 and completed his masters in Business Administration two years later. After seventeen years in the traditional mortgage banking world Babak finally transformed this vision into his own practice in 2002 when he formed Charter Pacific Lending Corp, a mortgage company that has provided over $900 Million in residential real estate loans throughout Southern California. Babak and his team do things a little differently than other mortgage providers. They work as financial advisors, because they have come to realize that a mortgage is a very powerful financial tool. And just like any other financial tool, it should be managed as part of the overall financial management plan to reach every home owner’s long and short-term financial goals much faster. You can contact Babak for a free consultation and strategy session at (800) 322-1217 X103.