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How Lenders Determine Your Mortgage Interest Rate

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Determining Your Mortgage Interest RateWith the cost of homes steadily rising, it wouldn’t be surprising if people were looking for a way to save even the smallest amount of money on their home purchase. And between the down payment, closing costs, inspections, PMI, and more, the cost of a home can quickly add up.

Paying interest on your mortgage isn’t avoidable, but you don’t have to feel like you don’t have any control over how much you pay. As you start the homebuying process, you’ll want to consider what factors into the total cost of your loan. The reason being you can improve your chances of saving some cash, especially when it comes to your interest rate.

To ensure you can get the best deal possible, it would be beneficial to understand how mortgage interest works as well as how lenders determine your mortgage interest rate.

How does mortgage interest work?

Mortgage interest, which is a fee charged by a lender for lending money to a borrower, will vary from person to person and lender to lender. Every month when you make your mortgage payment, mortgage interest will account for a portion of that payment. In fact, a majority of the payment is used to pay down interest, while only a small portion is used to pay down the principal balance, or the loan amount.

However, as you continue to make loan payments, and the principal balance decreases, your interest will also decrease. With this change in the amount of interest that is to be paid, more of your payment will go towards the principal balance. With the mortgage interest rate having an impact on the total cost of the loan and your monthly payments, a lower interest rate is better.

What factors affect my mortgage interest rate?

Your lender determines your mortgage interest rate. They do so using a variety of factors that will ultimately help them get a clear picture of your finances and your ability to repay the loan.

Lenders will use seven different factors to determine the mortgage interest rate:

  • Credit score: Number used to confirm a consumer’s creditworthiness.
  • Home location: State of home.
  • Loan type: Conventional, VA, FHA, or other special loan programs.
  • Loan amount: The total cost of the home and closing costs minus the down payment.
  • Loan term: The time borrowers have to repay their loan.
  • Down payment: A percentage of the loan amount paid at closing.
  • Type of interest rate: Fixed interest rate stays the same, while adjustable interest rate changes based on the market.

Using the abovementioned factors, lenders will be able to determine your interest rate. Every lender will offer a range of mortgage interest rates, so before applying, you may be able to confirm the rates offered to get a better idea of what the total cost of your mortgage might be.

For example, if a lender’s rates fall between 3.40% and 9.22%, your rate will be between 3.40% and 9.22%. Using a mortgage calculator, you can calculate the cost of your loan and your monthly payments. Of course, if a lender’s rates are too high, you have the option to shop around and look into other lenders who offer something more affordable for your budget.

Next to buying a car, buying a home is likely one of the largest purchases you will make in your lifetime. You might even buy more than one, but as a first-time homebuyer, you may not be 100% sure how to get the best deal. And considering how much people pay in interest, you want to be sure you are getting the best deal.

 

 

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Spring Wedding? Tips on Saving Money on Your Destination Wedding

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Are you planning for a spring wedding? You are not alone; many love birds like planning their destination wedding for this time of the year. Spring is that unique season of the year where love is in the air, flowers are blooming as plants are blossoming.

Unfortunately, a wedding budget can kill your dream of a spring wedding before it sees the light of day. The question is; can you still enjoy an awesome wedding on a tight budget? Indeed you can. Our tips on saving money on your destination wedding have got you covered.

Spring Destination Wedding

Choose a Resort Offering an All-Inclusive Bundle

All-inclusive wedding bundles will enable you to get a flat rate on your whole wedding package. In fact, they can save you hundreds and even thousands on your wedding if done right.

These bundles may include food, sporting activities, drinks, makeup services, spa services as well as other guest events. As for drinks, you can have any of the three below:

  • Cash bar
  • Open bar
  • Consumption bar

A consumption bar can help you strike a balance between your guests getting some free drinks and paying for extra ones. You can make the bar open to your guests but set a spending threshold or a time limit with the owner. If the guests hit the limit or reach the set time, it can then be converted to a cash bar. This will save you money.

Another advantage of wedding bundles is that costs involving decoration, parking, photo sessions, and transport are reduced since your location is the same.

Combine Your Wedding and Honeymoon

Some resorts will offer you incentives and discounts if you combine your wedding with your honeymoon. Having your destination wedding and your honeymoon in the same location will help you save on traveling and other costs

You should, however, visit the place prior to the wedding to make sure it is diverse and interesting enough for both occasions. Another way to save would be to pack travel-sized items that you will need for your honeymoon to avoid buying from vendors.

Slash your Guests List

Naturally, a destination wedding doesn’t attract hundreds of guests; this ultimately reduces the financial pressure that comes with your wedding. Still, if there is a way you can further slash the guest list, do it by all means. 

Select an Offseason Date For Your Wedding.

Offseason wedding dates attract low rates and costs charged on weddings by resorts. Find out places which offer discounts for weddings on certain dates. As good as it sounds to your pocket, it is important to make sure that the dates you choose for your wedding won’t lead to a low turnout.

Additionally, for wedding festivities, you can choose a weekday to ensure even as guests come they won’t be overstaying as they also need to get back to their commitments.

You can also save your wedding costs by scheduling your wedding for a less traditional time of day. If for example the ceremony is planned for a weekday afternoon, the venues will charge less as compared to a Saturday afternoon event. Your guests might even drink less.

Consider Local Lenders for Your Wedding Supplies

Not everything you need for your destination wedding can be found where you are going to wed. You may need additional items and services. Consider local vendors who can offer reasonable prices from the wedding location rather than bringing vendors from home.

If you come with your vendors you have to cater for their travel and accommodation costs. Furthermore, if they are bringing items with them to a different country, you will have to cover the shipping cost directly or they will be indirectly included when you get priced.

Make sure you get recommendations from family and friends about the best vendors from where you are going to wed. You can also use Google and social media to find good vendors in advance.

The Take-Away

Destination weddings are the trend nowadays; this doesn’t mean you need to break the bank to have one. With proper planning, flexibility, and any of the above tips that suit you, you can whisk your love away to say ‘I Do’ in a destination of your dreams.

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Improving Your Odds of a Lower Interest Rate

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Getting a Low Mortgage Interest RateHomeownership is a huge financial responsibility you have to be prepared for. Everyone knows that buying a home can be expensive, but that doesn’t mean there aren’t ways to save on this purchase. Considering how much your interest rate can tack on to the cost of your home, homebuyers should do what they can to get a low rate.

Here are a few things you can do to improve your chances of getting a better interest rate on your home loan.

Consider a larger down payment

Homebuyers pay a down payment when they are purchasing a home. You’ll see many homebuyers making a down payment between 3% and 20%, sometimes more. Paying a larger down payment can lower your mortgage interest rate because it will decrease the loan amount. Since the down payment will be subtracted from the loan amount, which is equal to the cost of the home plus closing costs, you won’t need to actually need to borrow the full cost of the home.

Improve your credit score

Lenders use credit scores to get a better idea of an applicant’s financial health, habits, and stability. High credit scores are much more favorable than lower scores when it comes to borrowing because a high score makes lenders believe that person is less of a risk. Since your credit score is one of the factors used to determine your mortgage interest rate, before applying for a home loan, take a look at your credit report and see if there is room for improvement.

Purchase discount points

Discount points can be purchased at close to lower a buyer’s mortgage interest rate. The cost of each discount point equals 1% of the loan’s amount and reduces the interest rate by 0.25%. So, if your loan amount is $250,000, one discount point will equal $2,500, which will get an interest rate of 5.25% reduced to 5.0%.

Although discount points can get you a lower interest rate, one thing to note when considering purchasing discount points is how long it will take to get your money back from this purchase. It is recommended to only purchase points when keeping the home for a longer period of time because you want to ensure you break even or recoup the cost of the points in savings.

Sign up for AutoPay

You have to pay your mortgage every month, so why not save some money while doing it? Lenders sometimes offer a rate discount when borrowers sign up for Auto-Pay and have their mortgage payments automatically withdrawn from their checking or savings account. In order to maintain the discount throughout the life of the loan, borrowers must remain on Auto-Pay. If removed, the rate discount will no longer be applied and their payments will increase.

Shop around

It is always recommended for homebuyers to shop around. You want to ensure you get the best deal available, and if you only check out one lender, you can’t be sure that another lender could have offered you something sweeter. What some buyers don’t know is that they can ask one lender to match another lender’s offer. If you have quotes from multiple lenders, but there is one you prefer, you can bargain with them and ask them to give you the lower rate that another lender has offered. They won’t want to lose your business, so chances are you’ll get that rate.

Ask for a lower rate

Every lender has certain rates that customers can receive for their mortgage. When you apply for a mortgage, you may not get the lowest rate the lender offers, but that doesn’t necessarily mean you can’t. Your lender can be flexible with your mortgage interest rate, but you won’t find out unless you ask.

 

 

 

 

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Does Using Credit Cards vs. Cash Help My Credit Score?

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Cash vs Credit

Building your credit score is a lot like building a good reputation. It takes years of consistency and work. It can be disheartening news if you have a bad credit score, but that doesn’t mean you are completely out of options. The best way to take control of your credit score is to start good habits today, and by making a commitment to those good habits for years to come.

If your credit score is less than favorable, you’re probably looking for ways that you can improve it. You may hear a lot of conflicting advice about the use of cash or credit to help your credit score. We’re here to set the record straight.

How Credit Works

The very first step to understanding your credit score is knowing how it is reported. When you are given a credit line from a credit card company or loan from your bank, you are permitted to use it within the set limitations while paying it back. It is your credit usage, on-time payment history, and credit habits that get reported to three governing credit bureaus: Equifax, Experian, and TransUnion.

A credit bureau is a company that collects information reported by creditors, lenders, and consumers in the form of a report – ultimately determining your credit score. In addition to your payment history and credit usage, your credit score is determined by the number of credit accounts, type of accounts, credit age, and credit inquires. A complex algorithm is then used to determine your unique credit score, which is updated on a monthly basis.

Cash vs. Credit

As you can see, cash is not directly involved in determining your credit score, but that doesn’t mean it should be avoided. Depending on your personal financial standing it might be better to operate with cash over credit. For example, if you have high balances on your cards or you don’t have a particularly positive credit history, it’s better to pay your bills in cash and make payments to get your balances down.

While this doesn’t directly affect your credit score, limiting your credit usage and paying your balances down will help you start down the path to repairing your credit and do wonders in raising your credit score. In general, your lenders and creditors like to see a credit usage less than 30% of your credit limit. This shows responsibility and self-control when it comes to being given credit.

On the other hand, you can’t have a credit score without some type of credit history. If you have no history with lenders or creditors, the three bureaus will not be able to determine your creditworthiness, therefore they will not be able to generate a credit score. If you have never been given any credit, it’s recommended that you start with a secured card or a secured loan, typically meaning they are backed by your savings, to start building good lending habits and trust. Just remember to adhere to all terms of your credit agreement and practice good credit habits in order to prove yourself to lenders when the time comes. It’s also a good idea to start monitoring your credit report to see where you stand financially and develop a strategy to get to where you want to be.

Conclusion

So, is cash or credit better at helping improve your credit score? The answer is, it depends on your personal financial situation. While it is true that you cannot build your credit score without having some type of credit from lenders, cash might be the right choice to take control of the debt that you already have and start displaying positive financial habits. Regardless of the strategy you choose, the first step is knowing exactly what’s on your credit report and monitoring it on a monthly basis.

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