Mortgage Rates – What Determines Your Mortgage Rate?
Many people are confused as to what exactly determines the mortgage rate or rate of interest they get when securing a new home loan or refinance loan. There is no great mystery, the rate of interest gets determined by a predetermined list of factors. The level of importance that each individual lender places on each factor varies, therefore doing your due diligence and finding a lender that offers you the best rate for your circumstances is key to securing the lowest mortgage rates possible.
It is also wise to make sure you take some time to clean up your portfolio and make yourself as attractive as possible as a borrower. The lenders will look at the following factors to determine what your rate will be.
1) Amount of your down payment. This will affect your rate in two ways. First, the higher the percentage your down payment amount is of the total loan amount, the lower your interest rate will be. Second, the less your loan amount, the less interest you will pay.
2) Consideration of closing costs.
3) Your income. The more you make, and CAN PROVE you make, the less risk you are as a borrower, and the less your mortgage rate will be.
4) How long your mortgage is for. The more years, the more interest.
5) The amount you’re borrowing. Again, the more you borrow, the higher your rate will be.
6) Is the loan a fixed rate or is it adjustable? Of course, an adjustable rate mortgage will start you off with a lower rate but can balloon once the term of the loan is over. Be careful.
7) Credit score. The higher your credit score, the lower the rate. Lenders like to see credit ratings of 720 or more these days.
8) Debt to income. Pay off your credit cards, pay down car loans or pay them off if you can. The better your ratio of debt to income, the lower your rate of interest will be.