Does a low credit score cost you?
As we all know, mortgage rates fluctuate on a daily basis, so the goal, as a borrower, is to lock in the best rate you can. Keep in mind that locking in a rate, in and of itself, may not necessarily guarantee that you wind up with that rate, especially if your credit score was not known at the time of the lock. If you thought your credit score was 800 and now you discover it’s 640, kiss the initial rate goodbye and expect to pay more on rate and monthly payment (and if you put less than 20 percent down payment, your mortgage insurance increases as well). Generally, when your score is in the low 600 range, you may lower your interest rate by a half point for every 20-point increase to your credit score ($75 a month or $27,000 over the life of your loan for a $250K loan). Once you’re above a 660, it’s about a quarter point per 20 score points ($37 a month) up to a 700. As an example, if you take a $250,000 mortgage loan on a 30-year fixed loan:
|
Score |
Rate |
|
760-850 |
3.447% |
|
700-759 |
3.669% |
|
680-699 |
3.846% |
|
660-679 |
4.060% |
|
640-659 |
4.490% |
|
620-639 |
5.036% |
The difference between a 639 and a 700 score (really not much) over the life of this loan is about $78,000 in interest. If you add in all your consumer loans such as auto loans, credit cards and bank loans, which also go by credit scores, then this could easily add up to more than $100,000. Add it up and it could be a staggering $178,000 lost over 30 years (and some interest is not deductible!). Not to mention the opportunity cost lost on the money that could have been used for investments instead of interest.
Isn’t it worth getting your credit score up??
The answer is … Absolutely! Start now to get your scores up to keep your interest rates down. It’s the only way to lower rates without market risk.
By Carl Guzman
Carl Guzman, NMLS# 65291, CPA, is the founder and President of Greenback Capital Mortgage Corp., a Zillow 5-star lender http://www.zillow.com/profile/Greenback-Capital/Reviews/?my=y. He is a residential financing expert and a dealmaker with over 26 years’ industry experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! www.greenbackcapital.com [email protected]
