Expert Tips for Getting the Best Mortgage Rates

Here are five expert tips you can use for getting the best mortgage rates.
 
Shop around. Different lenders can offer drastically different rates. It is best to explore options at your regular bank and other banks and local credit unions. A larger down payment can increase your options as far as loan types.
 
Know the differences between fixed-rate and adjustable-rate mortgages. There are two common types of mortgages: fixed rate and adjustable rate. A fixed-rate mortgage will have the same interest rate for the life of the loan — the only way to change it is to refinance. An adjustable-rate loan, on the other hand, will fluctuate along with the market rate. These loans usually begin with a fixed-rate introductory period, usually one to 10 years, and then will change based on the bank's interest rate index. Typically, these rates will be based on the prime interest rate plus a certain constant percentage.
 
Which type of interest rate is better? Adjustable-rate mortgages can be appealing since they can have very low introductory interest rates, but if you choose to go this route, prepare yourself for the possibility of a rate increase after the introductory period expires. If interest rates are fairly low at the time, a fixed-rate loan can be a good idea. When interest rates are low, a future increase is very likely. Alternatively, if interest rates are high, most people will expect them to drop in the future. When this happens, you might want to consider refinancing or you will end up paying an interest rate that is higher than the current market rate.
 
Maximize your credit score. The higher your credit score, the lower the interest rate will be on your mortgage. One important part of this is paying off debt. Your debt-to-income ratio is an important factor in determining your mortgage interest rate.
 
Decide whether you want to pay for points. Buying a point — usually by paying a fee of 1 percent — will lower your long-term interest rate by a set amount — usually 0.125 percent. This may seem like a very small amount, but it can add up over the life of the loan. If you are planning to keep your home for a long time, paying for points can be a solid financial strategy. Average homeowners, however, will live in their home for nine years. On this shorter horizon, the upfront cost will usually be greater than the long-term interest rate savings. If you aren't sure how long you will live in the home, it is usually best to skip paying for points.
 
You might also be presented with the option to select negative points. This is exactly what it sounds like — a higher long-term interest rate but lower upfront fees. Carefully weigh your options before settling on a strategy.

Is the Home Office Tax Deduction for You?

One of the best and often overlooked tax deductions is the home office deduction. While this won't reduce your IRS payment to zero, it can still provide a lot of added value, especially for those working from home or running a business out of their spare bedroom. Just make sure to use it correctly.

For starters, it requires no additional outlay. Unlike many other deductions that require you to invest in something or spend additional money in order to qualify, the home office deduction does not. It is just a matter of shifting perspective. What you would normally see as a non-deductible expense, such as a business-related internet bill or new printer, could indeed be a write-off. Take some time to think about items that you also use for business that could fall into this newly discovered category.

Best of all, it's very easy to claim and requires little to no advance planning. While you're at it, you can even claim write-offs from last year's tax expenses, if you haven't already. Simply file an amended return for your last year's tax return and claim a tax refund. Again, just be sure you are making claims on justifiable items. Here are a few tips to keep in mind:

1. Make sure your office space is exclusive

This means that you cannot use this space for anything else. For example, if you happen to do work in your dining room but also eat dinner here every night, it would not qualify. This space needs to be used for business activities and nothing else. (There may be an exception to this restriction if you use part of your house as a licensed day care facility.) Don't challenge the IRS, they will win. I promise you.

2. The space claimed must be your primary place of business

Now, this doesn't mean that it's the only place of business, it just means that it's the principal place of business — it's where majority of your work is done, but again, not necessarily all your work. This is usually what stops people from claiming their home office as a tax-deductible expense because they think of the other places they also work, but this is not the case. As long as you spend 51 percent of your time here, it counts. Regardless of where the other time is spent.

3. Don't fear the IRS

While many myths claim that home offices are an IRS audit flag, that is not the case. In today's day and age, almost half of Americans have home offices. The issue is that less than half of those people are claiming them as deductions because of the fear of being audited. Don't be one of those people. Don't let the IRS take more of your hard-earned money. Claim what is rightfully yours, and write off all those business-related expenses.

The final piece of advice is to consult with a tax professional, who can address your particular situation, and which deduction method (regular or simplified) is right for you, and confirm what expenses are in fact tax deductible.