Homebuying July 04 2017

How is My Mortgage Interest Rate Determined?

If you are in the process of applying for a mortgage or plan to in the future, you may have heard of the importance of locking in a low-interest rate. For those of you just getting started, your mortgage interest rate is the fee for the amount borrowed set by the lender. But how does the lender determine this rate? While the general interest rate market is sensitive and fluctuates with the economy, there are a few factors that influence what is known as risk-based pricing. When a lender approves a borrower for a loan, they trust that the borrower will be able to pay back the amount loaned. In order to determine how risky a borrower might be, lenders will consider these five factors:  

1. Credit Score

This is where your credit history comes in. Lenders use your credit score as one of the first (and most important) indicators of risk. The lower your credit score, the more risk you bring to the table, therefore the higher your interest rate may be. If your credit score is struggling, try picking up some of these four credit building habits!

2. Loan-to-Value (LTV) 

The LTV is the ratio of your loan to the value of the property. The lower your LTV, the more equity you have in your home, the less chance you have of defaulting, so overall, a lower interest rate.

3. Property Type 

The property type considers whether the property is a home, condo, etc. For example, a condo may collect a higher interest rate to pay for maintenance of the building it is a part of. In addition, the property is classified based on its purpose. Is it a primary home, secondary home or investment property? A second home or an investment property is not the homeowner's primary expense, so it has a higher risk of default, thus might have a higher interest rate.

4. Down Payment

Once you have found the right home and evaluate the home price, you can formulate what down payment will be. The loan amount is the home price minus your down payment.  Typically, the larger the down payment, the lower the interest rate so you'll want to make sure you save for your down payment!

5. Loan Type 

The loan type addresses what type of loan you are applying for, including the term and interest rate.

  • The loan term will be the time in which you will pay back the loan. For shorter terms, the interest rate is generally lower, but monthly payments will be higher than a long-term loan.
  • The two types of interest rate types are: fixed and adjustable. A fixed interest rate is set when the loan is closed and does not change. An adjustable interest rate begins with a fixed-rate period and then changes depending on how the market’s doing. In general, adjustable rates will have a lower initial interest rate but will be unpredictable after the fixed period is over.

 

Now that you know how your interest rate is determined, it's time to find the best mortgage rate for you!

Contact a Loan Officer Today!

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February 07 2017

Mortgage Tip #6 - Don't Omit Debts or Liabilities on Application

It is important to be very honest and accurate about all of your debts and liabilities during the loan process. Everything will be verified, and any ommissions could delay or jeopardize your loan! Be sure to triple check your work when providing information to...

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February 07 2017

Mortgage Tip #5 - Money Set Aside for Closing

We all know that having enough money for your down payment is critical. But remember, there will be fees and costs during your closing as well. Be sure to set aside enough money for your closing costs, if not, it could cost you your home!

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February 07 2017

Mortgage Tip #4 - Credit Card Usage

You should always control your credit card usage, but especially during the home loan process! By using your cards excessively or making late payments will have negative effects on your credit score, causing problems with your approval.

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January 25 2017

Mortgage Tip #3 - You should not buy a vehicle

Applying for any new credit, including one used to purchase a vehicle, could result in inquiries on your credit report. This can lower your credit score, which can affect the amount of money you can qualify for....

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January 25 2017

Mortgage Tip #2 - Do Not Co-Sign a Loan

When your loan is being processed, it is best not to co-sign another loan for anyone else. This could cause changes to your credit report, causing a negative effect on the closing of your loan. https://eaglehm-2.wistia.com/medias/uyua34ux7z Still have questions?...

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January 25 2017

Mortgage Tip #1 - Do Not Change Jobs

It is important that the lender knows you are reliable and have a steady income. One way of proving this is to not suddenly change jobs. Since employment verifications happen within five days of closing, it's best not to make any large lifestyle changes...

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January 24 2017

Breaking Down Your FICO Score

Most people are familiar with the FICO score version of the credit score. Scores on the FICO scale range from 300 to 850. However, there isn’t just one credit score range to go by. There are different types of credit scores, and each of them has its own...

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January 20 2017

Tips on Buying in a Tight Market

Increase your chances of getting your dream house instead of losing it to another buyer, with these easy steps. Get prequalified for a mortgage. You'll be able to make a firm commitment to buy and make your offer more desirable to the seller. Stay in close...

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January 20 2017

Tips for Finding the Perfect Neighborhood

The neighborhood you choose can have a big impact on your lifestyle, safety, available amenities, and convenience all play their part. Make a list of the activities, movies, health club, church you engage in regularly and stores you visit frequently. See how far...

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