Mortgage rates are advertised on television, radio commercials, and mortgage rate sheets are available at real estate offices. When choosing a lender, you can compare advertised rates, but they are unlikely to be realistic or accurate. This is due to the fact that your mortgage rate is unique to you. To find out what rate you truly qualify for, you’ll need to obtain and compare personalized quotes from lenders.
What factors influence mortgage rates?
Your mortgage rate is determined by your personal financial situation as well as the home you intend to purchase. But that isn’t all. Mortgage rates also reflect changes in the U.S. housing market and the global economy, which explains why they are constantly changing.
- Economy – All interest rates, including mortgage rates, are influenced by the global financial picture.
- Lender pipeline – The volume of business a lender is currently processing can have an impact on their rates.
- Property location – State laws can either increase or decrease lender costs.
- Home use – Is it your primary residence, a vacation home, or a rental?
- Single-family, multi-family, condo, mobile home, co-op, and so on.
- Loan-to-value – Borrowing less (and putting more down) results in a lower interest rate.
- Credit score – A higher credit score translates into a lower interest rate.
- Loan terms, documentation, rate adjustment, interest-only payments, and so on.
- Points – Paying more in advance for “discount points” lowers your interest rate.
- Loan amount – Extremely high or extreme low loan amounts can result in higher interest rates.
To get the lowest quoted mortgage rate, you’ll need a low LTV ratio and excellent credit score. For everyone else, risk-based pricing modifications will be implemented.
When you get a personalized quote from a lender, you’ll know exactly what your interest rate will be.
Mortgage rates fluctuate all the time
Another challenge you’ll face when looking for a mortgage is that a quote you get over the phone today may be invalid in 30 minutes. A President’s tweet may mean a major difference in the economy. After President Trump tweeted that the Federal Reserve should drop rates to zero or below, rates plunged. So the rate quoted today may be lower — or greater — tomorrow. Your closing date is nearing, so lock in your rate quote to avoid surprise price rises.
Controlling Mortgage Rate Factors
Many of the factors that influence your mortgage rate are beyond your control.
Your rate is largely determined by factors you may control. The following are the details:
- Property type — When deciding between two homes, consider the relative cost of financing.
- Loan-to-value (LTV) — Putting down more money increases your chances of loan approval, lowers your loan fees, and qualifies you for a lower mortgage insurance rate (if applicable)
- Credit score — It may be worthwhile to postpone purchasing a home in order to focus on improving your FICO score and obtaining a lower interest rate.
- Less than 30-year fixed-rate loans can save you thousands of dollars in interest.
- Points – Paying extra upfront can get you a cheaper interest rate.
- Loan amount — Getting a conforming first mortgage with a purchase-money second mortgage may be a better option than getting a more expensive jumbo home loan.
When buying or refinancing a home, you can get the best mortgage rate by understanding the factors you can and cannot control.