Lowering your interest rate can save you tens of thousands of euros over the life of your loan. Here are the most effective ways to reduce your score:
1. Improve your credit profile before borrowing
Boost your credit score: A high score is key to the lowest rates. Pay off your credit card balances and avoid taking out new loans before your Investopedia application.
Increase your down payment: By exceeding 20%, you reduce the risk for the lender, which often results in a preferential rate and the elimination of expensive Consumer Financial Protection Bureau (CFPB) borrower’s insurance.
2. Purchase Mortgage Points
You can pay an upfront fee (called mortgage points) to “buy” a lower interest rate.
The calculation: Generally, 1 point costs 1% of the loan amount and reduces your rate by 0.25%. This is an excellent strategy if you plan to stay in the house for a long time (Bankrate).
3. Change the loan structure
Reduce the term: A 15-year loan will almost always have a lower interest rate than a 30-year loan, even if the monthly payments are higher (Forbes Advisor).
Consider an adjustable-rate mortgage (ARM): If you plan to sell within 5 to 7 years, the initial rate of an ARM is often much lower than that of a fixed rate.
4. Shop around
Compare at least 3 lenders: Rates vary from bank to bank for the same borrower profile. Use a rate comparison tool like NerdWallet to see current offers in real time.
Negotiate: If Bank A offers you a better rate, show the offer to Bank B. They are often willing to match it to win your loan.
5. Refinancing (If you already own a home)
If market rates have fallen since your purchase, you can replace your current mortgage with a new one.
Rule of thumb: Refinancing is generally worthwhile if you can lower your rate by at least 0.75% to 1% (Mortgage Reports).