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Average mortgage rate: Everything you need to know

The reason credit score is so important is that it indicates to lenders your level of risk. If you have a low credit score, for instance, you will be seen as a greater risk. Therefore, applicants with lower credit scores face higher interest rates. Conversely, if you have a good credit score, you will be offered a lower interest rate. You can opt for a mortgage refinance if you improve your credit score after you’ve gotten a loan.

The first step to improving your credit score is to review your credit report to determine if you have outstanding balances. If so, pay those balances and make your payments promptly each month. If you detect any errors on your credit report which can negatively affect your credit, be sure to correct them.

3. Be selective with your loan term

Short loan terms are less of a risk and therefore come with lower mortgage rates. Of course, in exchange for the lower mortgage rate you will likely have higher monthly payments. The reason is that you are paying off the principal in less time. Long loan terms spread the payments out over a longer period, which leaves you with lower monthly payments and higher interest rates.

Long-term loans will likely provide you with more disposable income each month, while short-term loans typically save you more in the long run. This makes a short-term loan a better bet, if you are looking for low mortgage interest rates specifically, as well as savings over the life of the loan.

4. Make a larger down payment

You will owe less on the loan if you make a larger down payment. It also means you will have more equity in your property from the beginning. In that case, you will have to repay less principal, and you will have to pay less interest over the life of the loan, because it is calculated on the principal owed.

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