What Determines Your Mortgage Rate?

Everyone is talking about interest rates right now, and with good reason. A couple of years ago, we saw interest rates hit historic lows as the Federal Reserve tried to stimulate the post-pandemic economy. But then inflation happened, and now the Federal Reserve has raised interest rates.

As a buyer, you should do everything you can to get the best interest rate possible. But remember: you can always refinance to a better rate down the road.

But how are you actually supposed to get a good rate in the first place? To many buyers, the mortgage rate can seem like a black box that just spits out a number (your interest rate) and you’re stuck paying it each month.

There are several factors your lender considers when determining your mortgage rate. Let’s go over the top 4 things that impact your rate.

1. Your Credit Score: Your credit score basically tells the lender how likely you are to be able to repay the entire home loan. The higher your score, the lower your interest rate will be.

2. The Type of Home Loan: Some loans, like the VA loan, can offer very low interest rates. Other loans, like your traditional 30-year fixed-rate mortgage, will have comparatively higher rates.

3. The Term of the Loan: Shorter loan terms will typically come with lower interest rates. If you’re trying for the lowest interest rate possible, look at changing the term of the loan.

4. Your Down Payment: The more you put down, the lower your interest rate will be because your lender will see you as less of a risky loan.

These 4 factors play a large role in your mortgage’s interest rate. That’s why it’s important to save for your down payment and focus on building your credit score before buying a home. You will also want to shop around for lenders because they'll offer different rates as well as look at different kinds of loans.

Your lender is a great resource on interest rates and how they’re calculated, but I’m also happy to answer any questions you may have about qualifying for a great mortgage rate. Just reply to this email, and I’ll get you the information you need!