Buying a home is one of the biggest transactions you’ll make in your lifetime, and the listing price is only a fraction of what you end up paying. One of the smallest (yet most important!) numbers that buyers need to consider is the mortgage interest rate and how that percentage affects your monthly payments. 

Lenders adjust interest rates based on your level of risk. By looking at factors such as your credit score and loan-to-value ratio, lenders determine how likely you are to fall behind on your monthly mortgage payments and how much money the lender could possibly lose if you default on the loan. 

Rates also vary by lender due to appetite for risk and overhead costs, which means you could potentially be leaving money on the table by not shopping around for low interest rates. If you’re looking for cheap mortgage rates, digital mortgage lenders offer some of the most competitive rates in the market. 

Will a Digital Mortgage Help You Get a Lower Interest Rate?

The rate and terms of your mortgage can significantly impact the total amount that you spend, and comparing different lenders could save you thousands of dollars over the life of your mortgage loan. If you’re interested in how to get a low interest rate on a mortgage, a digital mortgage could help reduce your monthly payments.  

The digital mortgage is all about self-service through technology. Instead of spending capital at physical locations, digital mortgage lenders are investing in digital platforms to automate the mortgage process, and are thereby able to process more loans at a faster rate. If you want to know how a digital mortgage saves money with low interest rates, it’s by leveraging consumer-friendly technology which allows digital mortgage lenders to lower the cost of lending.

On the other hand, brick-and-mortar lenders have higher costs associated with running their business. These overhead costs eat into lender profits, and lenders need to recoup these losses through higher borrower interest rates.  

Compared to the paper-based mortgage process, digital mortgage lenders operate with lower upfront costs and faster processing times. These cost savings can be shifted to the customer, meaning online applicants can potentially benefit from a low interest rate mortgage. However, this doesn’t automatically mean all digital lenders offer cheaper mortgage rates, which is why shopping around is so essential. 

What Are the Benefits of a Low Interest Rate on Your Mortgage?

The higher the interest rate, the more money you’ll end up paying for your home. For homebuyers, a low interest rate mortgage offers plenty of benefits. These include:

  • A lower mortgage payment. A low interest rate gives you a lower monthly payment and more room in your monthly budget to go towards other debts and expenses. For example, taking out a 30-year fixed-rate mortgage for $300,000 at 2.5% with a 20% down payment would be around $1,200 per month. Bump that interest rate up to 3.5%, and you’ll be paying close to $1,350 — an additional $150 per month solely in interest.
  • Less paid in interest over time. A lower interest rate means less paid in interest over the life of the mortgage loan, and more money in your pocket. Using the same example from above, a 2.5% interest rate would end up costing almost $127,000 over the life of the loan while a rate of 3.5% would total $185,000.
  • More purchasing power. If you buy a home with a lower interest rate mortgage, it means you can put more of your money towards your home purchase. That could mean a better neighborhood or a bigger home. 

Mortgage rates change all the time. A “good” mortgage rate can change dramatically from one day to the next depending on the current market. Good mortgage interest rates also look different to everyone. The rates you often see advertised by lenders are typically available to borrowers with excellent credit scores, stable finances and a low debt-to-income ratio. 

What you may consider a low interest rate, someone else may see it as high. This is why you need to know what a good mortgage rate looks like for you; however, that number depends on your lender, and the only way to find low interest rates is to shop and compare your options. 

Learn More About Ratecloud’s Mortgage Options

Looking for cheap mortgage rates and a smooth transaction? Thanks to technology, a digital mortgage offers an efficient, cost-effective home buying experience — meaning big savings for borrowers. Learn how Ratecloud can help you save money with low interest rates for your mortgage. Get started on your digital mortgage application today!