Low Interest Rate

Although low interest rates are not good news for savers, they are a boon for those who are in need of a mortgage or a loan. The global economic slowdown of 2008 saw governments across the world cutting interest rates in an effort to revive GDP growth. In the US, the interest rate on mortgages and loans fell to an all-time low of 4.78% on April 9, 2009, while in the UK it hit the lowest level in 315 years on January 8, 2009.

The interest rates on mortgages and loans are volatile and usually depend on several factors, such as the economic environment and inflation. Moreover, lending institutions, such as commercial banks, credit unions, thrift institutions and mortgage companies, apply different interest rates on these products based on their company policy.

 

Factors Responsible for Low Interest Rate

The possibility of low interest rates depends on a person’s credit worthiness. When a person applies for a loan/mortgage, lending institutions evaluate the following factors to calculate the lowest rate they can offer:

• Credit history: A person’s credit history, reflecting any possible default on payments is verified by lenders. Late payments on bills or existing loans might further affect a person’s credit worthiness. Individuals with poor credit history are offered higher interest rates on loans and mortgages.
• Current debt liabilities: Extensive debt liabilities would adversely affect interest rates offered to an individual.
• Lines of credit: Too many open lines of credit for an individual may be a cause for concern for lenders, who might consider him/her high risk and offer high interest rates.
• Employment data: Most lenders study a person’s employment data to determine credit worthiness.

Tips on Obtaining Low Interest Rate

To receive low interest rates:

• Improve your credit worthiness. This can be done by paying your monthly bills regularly and reducing your debt liabilities.
• Contact several lending institutions and ask them for quotes on the same loan amount and term. Each institution may evaluate you differently and offer different interest rates.
• Obtain the essential information related to interest rates (fixed or adjustable) and processing fees. Adjustable interest rates on a loan implies that your monthly payment increases with a rise in the market interest rates. Variable interest rates are typically lower, but riskier than conventional fixed-interest rates. A loan involves several hidden charges, such as underwriting fees, transaction charges and closing costs, which are usually not included in the interest rates. One must consider all costs before taking a loan.

Negotiate the costs and fees associated with your loan. Compare quotes for interest rates and monthly payments. Once you aresatisfied, obtain a written ‘lock-in’ from the lender.