For even the most experienced homebuyers, mortgage interest rates can still have a sense of mystery about them. If you’ve ever wondered how interest rates get calculated, your lenders at First Choice Mortgage can help. Read to discover some of the factors that affect your interest rate when applying for a home loan.
What Determines Mortgage Interest Rates?
There are many factors affecting mortgage rates. The ones that matter the most to creditors will depend on the homebuyer and their individual situation. Learn about some of the factors that may affect your interest rate:
Credit score
Check your credit before mortgage shopping, and review all your credit reports for errors. The general rule is that consumers with high credit scores receive lower interest rates than consumers with low credit scores. These scores are calculated based on information included in your credit report. Lenders will use this score to predict how reliable you will be paying back a loan.
Price of the home
The amount you need to borrow for your mortgage loan equals the home price, plus closing costs, minus your down payment. In regads to the amount of your mortgage loan, your circumstances or mortgage loan type, closing costs and mortgage insurance may be included.
Down payment
When you provide a large down payment, it can equal a lower interest rate. When you do this, you pose a lower risk for lenders. Your down payment shows you have a more significant stake in your property. A recommendation is to put down 20% or more.
Another thing to be mindful of is your overall cost of a mortgage. If you put a bigger down payment, this lowers the total borrowing cost. Lower interest rates can save you money.
The total borrowing cost may be higher since you’ll need to make the additional monthly mortgage insurance payments. Make sure you look at the total cost to borrow versus the interest rate only.
When you are factoring in all of the costs of your loan, shop around to avoid any costly surprises.
Loan term
The duration of your loan is how long you have to repay the loan. In general, short-term loans have lower interest rates and lower overall costs but higher monthly payments. Many specific factors that can affect you in different ways. The amount of money you can save on interest depends on the length of the loan you’re taking out.
Loan type
Mortgage interest rates will vary significantly depending on the type of loan you apply for. There are several types of mortgage loans, including:
- Conventional
- FHA
- USDA
- VA Loans
Talk to your lender at First Choice Mortgage about your options for a mortgage loan. We’ll help determine how the type of loan you take out will affect your interest rate.
Let First Choice Help with Your Home Mortgage
Many collective factors will play a role in determining your interest rate for a home loan. Everyone’s situation is different. But when you understand how it works, you’re on your way to living in your dream home. Explore our full list of First Choice Mortgage loan programs.
