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- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Mortgage Interest Rates Determined
Have you ever wondered how you got your mortgage interest rate? If you think that the mortgage interest rates are the same for everyone, you might want to rethink it.
The most common question a borrower asks a loan officer is, what is the interest rate today? Well, it is as good as asking a car dealer what is the price of the cars today.
As the value of the cars can vary depending on the model, brand, features, etc. Similarly, mortgage interest rates can vary depending on multiple factors. In this post, we will know how mortgage rates are determined for a borrower.
1) Credit Score
The most primary and important factor in determining your mortgage interest rate is your credit score.
The credit score is the king when it comes to not only determining your mortgage interest rate but also for many loan programs, your down payment amount too.
There are lender rate sheets where the swing between the rates goes from 700 to 600 credit score, and it could be as much as a 3% difference in the mortgage interest rates just by going from a 600 to a 700 credit score or vice versa.
Since your credit score is the most significant parameter to determine your mortgage interest rate, you need to make sure you take the right measures to improve your credit score before you start mortgage shopping.
2) Down Payment (Loan To Value Ratio)
In a loan like an FHA loan, for the most part, your down payment is fixed at 3.5%. However, for many other loan programs, the more you put down, the lower your rate would be.
Knowing that and having a larger down payment will impact the mortgage interest rate that your lender can offer you.
3) Loan Amount
People don’t realize this, but your loan amount is also going to impact your mortgage interest rate. Even if it is a small loan amount some lenders may have add-ons rate to your mortgage.
Every lender may have different loan limits to implement the rate add-on to the loan.
Some might have it below 150k others might have them added on for the loan amounts less than 100k, and these rate add-ons could be significant.
There is a cost involved in underwriting, processing, and managing your loan before and after the closure, and that could be a reason why the mortgage interest rates might increase to lower the loan amount of loans.
4) Loan Program
The loan program will always matter. If you have a conventional Fannie or Freddie approved mortgage, you are going to have potentially one set of rates.
The mortgage Interest rate for a jumbo loan is going to be higher compared to a conventional loan. FHA, VA, USDA, Subprime loans, all these types of loan programs have different mortgage interest rates.
Depending on your situation, the best-suited program would be provided by your loan officer, and the mortgage interest rate may vary on the type of loan you decide to get.
5) Property Type
The mortgage interest rates may also depend on the type of property you have or planning to buy. If the property in question is single to two-unit homes, your mortgage interest rates could be standard.
However, if the property is more than two units, condominium, mobile, or manufactured home, your mortgage interest rate has more chances to be on the higher side.
6) Occupancy Type
The type of occupancy is also going to influence your mortgage interest rates. Whether it is your primary residence or a second home, or an investment home will impact the interest rate that you will get on your loan.
7) Type Of Refinancing
Whether you are doing a rate and term refinance or a cashout refinance could also influence your mortgage interest rate. Cashout refinance has an interest rate adjustment with many lenders.
If you are comparing the mortgage rates of a “rate and term refinance” with a “cash-out refinance”, the latter would usually have a higher interest rate.
8) Debt To Income Ratio
If you have High Debt to income ratio, it could impact your mortgage interest rates. Most lenders or programs would like to cap the DTI to 43% as you go higher towards 50%. You are going to see a rate adjustment in such cases.
Conclusion
These are the factors that impact your interest rates. These factors will help you understand the reason why different rates are offered to different borrowers by different lenders.
It all drill down to specific situations depending on the factors mentioned above.
