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Question:


Any tips on securing a super-low mortgage rate?
-InTheMarket


Answer:


Here’s one: Go find a time machine. Given what has happened to interest rates lately, that could be your best option. If you manage to acquire such a device, use it to go back to last summer, when the yield on the 10-year Treasury bond sank to its lowest level ever, about 1.4 percent, taking mortgage rates down to all-time lows with it. Treasury rates have since risen as high as 2.7 percent, and they have carried mortgage rates back up, too, from about 3.3 percent last fall to 4.3 percent on loans backed by the government affiliate Freddie Mac. The average mortgage rate available in the marketplace is about 4.6 percent. Because there’s a lag of a few months, moreover, mortgage rates could rise further, even if Treasury rates stabilize.

If you have no time machine at your disposal, finding the best mortgage, even if it’s not “super-low,” is a matter of shopping around. You can do this yourself or hire a mortgage broker. Before you do that, you should take whatever steps you can to improve your credit score, such as establishing a track record of paying bills on time; paying down debt; making sure the outstanding balance on each of your credit cards is well below the card’s credit limit and making sure there are no mistakes on your credit report.

You should also plan on making as big a down payment as possible. That will reduce your monthly payments and could reduce your interest rate. It also will reduce your mortgage insurance premiums. These are payments to an entity that guarantees that the lender will be paid if you default. Mortgage insurance is required by most lenders on loans made with down payments of less than 20 percent to 25 percent of a home’s appraised value. One option if you’re a first-time buyer and have little in the way of a down payment and are looking for a modest home is to get a mortgage backed by the Federal Housing Administration. Your rate will be lower than average, about 0.4 percentage points lower these days. Your mortgage insurance costs could be higher, though.

-Conrad de Aenlle



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