Mortgage interest rates are at an all-time low. If you have good credit, you can easily refinance your home and secure a lower rate. In today's economy, however, many people have less than perfect credit. But don't worry, there are steps that you can take to improve your credit and secure a lower mortgage interest rate.The interest rate for your mortgage is dependent on many factors; your credit score and the national interest rate are two of those factors. While you have no control over the national lending rate, you are completely in control of your credit score. If you can improve your credit score by 20 points, you could dramatically lower your mortgage interest rate. How? Follow these tips to improve your credit score and secure a lower mortgage interest rate:
- Pay down credit cards. Keep balances lower than 25% of the available line of credit. For example: If you have a credit card with a $1,000 limit, your balance should be $250 or lower. Revolving debt ratio accounts for 30% of your credit score so it is vital that you get these balances down before you apply for a mortgage.
- Maintain a mix of credit. Do not rely heavily on revolving credit. A ratio of 2 to 3 credit cards to 1 secured loan is ideal. Secured loans include home loans, car loans, recreational vehicle loans and home improvement loans.
- Pay all bills on time. Past due notices wreck your credit score. Delinquencies account for 35% of your credit score. Remember; you need to pay ALL of your bills. Loans are not the only bills that show up on your credit report. If you fail to pay for a magazine subscription, it could show up on your credit report as a collection account. Unpaid doctor bills will also lower your credit score.In order to secure a lower mortgage interest rate, you have to improve your credit. Fortunately, it is not that difficult to do if you know what steps to take. If you're unsure about what information is included on your credit report, you can get a free credit report from one of the three major credit reporting agencies. For a small fee, you can even find out what your credit score is. Many financial advisors will tell you that taking a couple of months to improve your credit score before you apply for a mortgage greatly increases the chance of you getting a loan at a more favorable rate. Think about this: A 30 year, $200,000 home loan will cost you $96,934 for only 2% interest. If you can lower your mortgage interest rate from 8% to 6%, it will save you nearly $100,000 over the course of your loan.
Dron Fisher is a freelance writer, specialising in finance subjects such as loans, banking, mortgage, etc. He recommends use of a mortgage loan calculator for calculations at www.mlcalc.com
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