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By Doreen Martel

Finding the best mortgage rates in 2016

While not as low as they were in 2012, current home loan rates are still affordable for new home buyers. Here are some tips to help you secure the lowest available mortgage rates:

  • Know your credit score – Before applying for a mortgage, review your credit report. Correct inaccurate information. Provide explanations for accurate derogatory information.
  • Understand down payments – Lower your potential rate with a bigger down payment. The more you are putting down, the less risk a lender is taking.
  • Always compare rates – Not all lenders offer the same rates. Comparison shop before deciding on a mortgage.

Today’s interest rates

It is important to understand what drives interest rates. Changes in the political climate or the housing market and overseas conflicts may all impact mortgage rates. Different areas of the country may have varying mortgage interest rates.

Let’s make some assumptions:

  • 30-year mortgage
  • 20 percent down payment
  • 740 credit score (or above)
  • $400,000 loan amount
  • No points

As of May 24, 2016, Bankrate shows the following mortgage rates:

  • Boston MA – ranges from 3.515% to 4.142%
  • San Diego CA – ranges from 3.407% to 4.271%
  • Chicago IL – ranges from 3.518% to 4.271%

As you can see, the rates vary by geography. Lower credit scores would also mean higher interest rates. Lower down payments would result in higher interest rates. Some lenders will include closing costs and points, which could drive rates higher.

What consumers should know

Most economic advisers believe mortgage rates will continue climbing in 2016. Consumers should shop around before settling on a lender. You want a lender who has good customer service and offers various loan products. Mortgage types include the following:

  • Fixed rate – Consumers pay the same mortgage payment for the life of their loan.
  • Adjustable rate – Rates may fluctuate over the life of the loan. Loans vary from five-year to seven-year adjustable rates and may fluctuate every six months after that period of time.
  • Balloon mortgage – Payments are fixed over a short period of time and then the entire mortgage is due.
  • FHA mortgage – Government-backed loans which allow down payments as low as 3.5 percent. May also have less stringent credit requirements.
  • VA mortgage – Often available with no down payment for eligible homeowners. Eligibility is limited to active duty members, veterans, guard members, reservists, and certain spouses

Finding the right mortgage lender

Finding the right mortgage lender isn’t easy. Your real estate professional may refer you to someone they know. Consult with friends and family who have recently purchased a home. Check rates online to find out if the offers you have received are competitive. Consumers may find a savings bank offers a lower rate than a larger bank. Smaller banks may not have dedicated mortgage teams, which can be problematic.

Many people buy their first home while rates are low. Make sure you review all the possible options available to you before settling on a loan. The better prepared you are when shopping for a mortgage, the more likely you are to get a lower rate. Your home buying experience will be far more satisfying if you understand mortgage rates.

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