The mortgage is often the biggest single expense homeowners pay for each month. However, homeowners may not realize they are overpaying each month if they do not get the best interest rate possible. To lower your monthly mortgage payments, consider looking at your mortgage rate to determine whether you can reduce your interest payments. According to a study by Bankrate, 35 percent of mortgage borrowers are not certain what their interest rate is. Not knowing your mortgage rate could prevent you from making borrowing decisions that could help save you thousands of dollars in the long run.
Here is why you should check your mortgage rate right now:
1. Rates Could Be Lower Than You Expect
If you are not sure what your rate is, contact your lender and ask it to provide documentation confirming the type of mortgage you have and the interest rate. Homeowners with fixed-rate mortgages know the rate will stay the same throughout the life of the loan and can plan their budget around these regular monthly payments. However, borrowers with adjustable-rate mortgages will have to ensure that they understand their current interest rate because these rates may change. Adjustable-rate mortgages will change after an introductory period has passed, according to Investopedia. For example, a 2/28 adjustable-rate mortgage means the initial interest rate will be fixed for two years before varying for the remaining 28 years of the loan.
2. Prepare Yourself for Rate Shopping
With knowledge of where you stand with your credit score, you can research interest rates offered by a variety of banks and credit unions. Through preparing yourself before looking for a smaller mortgage rate, you could decide whether you want to refinance or even take the next steps toward buying a new home. To get the best interest rate, you should shop around by getting quotes from three or more lenders, according to the Consumer Financial Protection Bureau.
3. Your Improved Credit Could Save You Money
When you first applied for a mortgage, the lender approved you based on your credit profile. Time may have passed and your credit score could have increased from making payments on time. You could have also upped your score by adding to your credit mix or other actions, which may make you eligible for lower interest rates. By knowing your current mortgage rate, you could decide to apply for and obtain a lower rate based on your improved credit score.
4. Save Money by Refinancing
Determine whether refinancing is right for you if mortgage rates are lower than they were when you locked in your initial rate. The Bankrate survey noted that if you have a $200,000 loan and refinance from a 6 percent interest rate to a 3.8 percent rate, you could save $267 per month on your mortgage payment. Refinancing will involve sending financial documents to a lender to prove you maintain a steady income and have the means to pay for your refinanced mortgage. After this process is over, you could cut your interest payments significantly over the course of the borrowing period.
5. You Want to Sell Your Home and Buy Another
Homeowners also may want to take advantage of lower mortgage rates by selling their home and moving into a bigger or better one. By researching your current loan rate, you could also decide to sell your home to nab a mortgage at a lower rate and upgrade your living situation. Evaluate your finances when making your decision to sell your home to determine if now is the time to put up your house for sale and buy a new one.