Best Fixed Rate Mortgage - Is there really a discount?
Discounting Your Way to a Better Mortgage
Certainly there are many angles to try when searching for a better mortgage package from a lender. However, one angle includes trying to obtain as many "discounts" as possible to lower your mortgage rate. Some of these discounts are well known, but others may not be. In order to be thorough, let's cover these in detail to give you the best idea of how to approach your mortgage.
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The most common means by which you can discount a fixed rate mortgage is to pay additional "discount" points. These points are paid in advance at closing in order to lower your mortgage rate. Generally, a point is equal to 1 percent of the loan amount, and on a 30 year fixed loan, paying one discount point lowers your mortgage rate 0.25 percent. If you are planning on being in your home a long time, this may make perfect sense. However, if you have a small down payment or lack adequate cash for closing, paying points are not usually cost effective. In these situations, adding money to the down payment or having adequate funds for closing are better uses of your money.
Some lenders will allow discounts for automatic withdrawal payments or for accepting a pre-payment penalty. Borrowers that make monthly mortgage payments by way of monthly debits from their financial accounts are more likely to make payments on time and less likely to miss payments in general. Certainly this is not fool-proof, but it is a means by which you can slightly lower the lender's risk and reap some additional benefits with a lower mortgage rate. Check with your lender and see if this is a possibility for your situation. In general I don't encourage borrowers to take the pre-payment penalty if avoidable, but I have seen borrowers take the option.
Although offered by a very few lenders, there are "green" mortgages which may offer discounts for environmentally friendly homes. This is generally only cost-efficient for new homes. Because the requirements to meet "green" standards are quite stringent, renovating an older home is usually too expensive to make this worthwhile. If you are in the market for solar panels and other ecologically friendly construction means, you may want to inquire about the discounts from lenders that do provide these loans. The selection of different mortgage products is limited because so few lenders offer these products, but it still may be the ideal product for you.
A more common approach in seeking a mortgage discount is simply looking at your mortgage term. Compared to a 30 year fixed mortgage term, 15 and 20 year fixed mortgages offer lower interest rates most of the time. Because the payback is over a shorter period of time, the lender's risk decreases. As the lender's risk decreases, so does the mortgage rate. However, because the term is much less, the monthly mortgage payment is going to be more compared to the 30 year term. If this is affordable for you, this is a nice way of acquiring an additional mortgage discount.
Lastly, the best way to discount a fixed rate mortgage is to shop around. This may be locally and on-line using web lenders. Also utilizing the services of a mortgage broker can help tremendously in seeking the best fixed rate mortgage. While base lending rates may be fixed, each lender has the ability to discount fees and costs to let you have the best rate. Tactfully let different lenders know you are shopping around, or let your mortgage broker do this for you. Competition often will create better discounts for you than would be present otherwise.
As you can see, even though a fixed rate mortgage is "fixed", there is plenty of room for further discounts depending on your situation. Discount points, terms, credit scores, payment methods, and other means can help you get the best discount on a mortgage. Use these tools and shop with or without a broker to find the best deal possible.
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