Lowering your interest rate
Banks have got to protect themselves, and I understand that–our market depends on it. But wouldn’t it be nice, just daydreaming a bit, if there were no such things as transaction fees, closing fees, or interest rates. Especially interest rates.
“Here you go Mr. Jones. You can just have this loan without any of those unnecessary costs. No interest fees or anything. Just bring the money back when you can.”
This unrealistic dialogue could never happen–it’s not how our market works. Interest, in particular, isn’t about to disappear. Many real estate investors have come to recognize interest rates as one of the largest expenses associated with this type of investing.
Simply put, interest can be defined as the price you pay to borrow money from the bank; you’re renting a large sum of money from the bank with a relatively small down payment and interest is the price you pay for leveraging.
But there are ways to lower your interest rate–though, eliminating it all together is nothing short of impossible. Those who can make a 10% down payment, who have decent credit scores, and who can prove their income/assets are more likely to be quoted a lower rate. And you can always pay Discount Points; these are fees paid up front and based on the amount you’re borrowing.
The way it works is like this: The more you pay up front in such fees, the more you can buy down your interest rate. Try to get at least three quotes from your lender, each with different amounts of discount points including maximum amount of discount the lender allows. Keep in mind that the first couple of discount points paid will most greatly affect the interest rate; additional points after that might not be beneficial considering how little they affect the interest rate.
So, while we can’t alter the banking system into an interest fee establishment, we can do our best to ensure the lowest interest rate possible for our real estate investments.