Getting a good interest rate can sometimes be a difficult task. There are some factors we have no control over, and some we do. Any potential lender is looking to approve loans to people with a good credit history, strong financials and well documented future income to cover their repayments. Several of these can be helped by taking the time to fix, improve and record your financial history.

Other rate-determining factors include the value of the loan, property type and location. Although you may not be able to change where you want to live or the kind of residence it will be, some tweaks can be applied to help improve your interest rate.

Check Your Credit Score

Gain access to your credit score online. A credit score is determined from looking at your credit report which has details on previous and existing loans, credit cards and payment history. Having a low credit score will severely hamper your chances of obtaining the best interest rates.

Start checking your credit report as early as possible as you can clear some lousy credit history and make a few changes to improve your score before speaking to a lender about a home loan. Those with a good credit score can maintain it by paying all their bills on time and limiting the amount they borrow on credit cards.

Loan Amount

The amount of money which the bank received from you makes a significant difference in the loan interest rates obtained. Paying a large deposit initially will keep the amount you need to borrow down and lets a lender see you have a stake in the property and will be likely to meet repayments.

Thankfully, as long as you have access to the internet (and who doesn’t these days?), your task of calculating all your borrowing expenses is made that much easier by free online tools that are provided by various lending institutions and brokers. Whether you’re living in Dayton, Ohio or Coober Pedy, Australia, you’re able to accurately gauge your borrowing power by simply accessing these tools and entering the relevant information. In Australia, for example, this includes entering the price of the property, type of loan, credit history and deposit amounts to find the best interest rate available through multiple lenders. Paying a deposit over 25% of the property value will give savings over the term of the loan.

Interest Rate Type

Many lenders offer teaser rates to encourage first time buyers with low repayments for the first few years, this can be suitable for some, but many get hit with monthly repayments higher than expected once the grace period is over. Having a flexible rate mortgage will leave you vulnerable to market conditions which dictate interest rates for central banks.

Fixed rate home loans are significant for those who need to know the total loan cost and are less averse to risk. A typical period for a fixed rate loan is one to five years with longer terms available. Rates may vary depending on the length of the loan. There are various options available for home loans and it is wise to see how mortgages work in your respective country using available online resources and tools.

Property Type and Location of Home

Differences in interest rates can be attributed to what property the loan is for and where it is. There is risk involved with every property, and this risk can change the interest rate. An attached house has a different risk level than a detached home, while a condo may have additional fees and higher rates compared to a small family house.

Those looking to buy a second home or investment property will not get the same rates as first time buyers. The risk is also determined by property location, having a loan on a property in areas susceptible to floods, tornados or fire will make differences to what rate a lender will offer. The less risk to you and the property will mean less risk to the bank’s investment.

Beyond Our Control

We can make a big difference to the rates we are offered on home loans through being diligent with money, maintain your savings and having a steady income, but the rates are inevitably dictated to the banks by the governing financial authority (such as the SEC or BoE). These institutions decide on whether to raise, lower or hold interest rates so as best suit the economy of the nation.

Keeping up to date with the economy of the country and property trends will help to avoid agreeing to a loan when property prices and interest rates are high.

Now that you have a better understanding of the factors affecting interest rates, you can utilise this knowledge in acquiring the best possible deal for you. Always keep up to date on real estate trends and remember to use the plethora of resources available online to aid you in your goal. And for those first-time buyers, consider exploring local state and government websites as there are always new initiatives to help people get on the property ladder. Good luck!