5 Factors That Affect Your Mortgage Rates
Mortgage interest rates are the costs paid by the borrower to the lender for borrowing money for a mortgage. They are expressed as an annual percentage rate (APR) that takes into account various fees, points, and other costs of the loan. Simply, mortgage interest rates are some of the most important numbers for prospective home buyers to know about. They tell you how much you’ll be paying on your monthly mortgage payments each month, and they also give you an idea of how much it will cost to buy a house. The interest rates may vary depending on various factors.
Top 5 Factors That Affect Your Mortgage Rates
- CREDIT SCORE
A credit score represents a person’s creditworthiness as determined by a credit agency. A high credit score indicates that the person is deemed as “creditworthy” and likely to repay what they borrow, while a low or bad credit score indicates that the person is deemed as less likely to repay what they borrow. Some lenders use your credit score to set your interest rate on loans, mortgages, and other types of borrowing. Some banks and lenders will offer you better rates if you have good or excellent Credit Scores. Bad or low Credit Scores can lead to higher interest rates on loans, so it’s important to pay attention to your score and work with it if necessary.
- DOWN PAYMENT
Whether you are looking to buy a house, or refinance your current mortgage, your down payment can affect the interest rates that you will be charged. The size of the down payment is a key variable in determining whether a loan is classified as a high-risk or low-risk credit. Mortgage lenders in Massachusetts want to know that they will be able to recoup money if a borrower defaults on their loan. A high-down payment is typically interpreted as less risk by lenders and they may offer lower interest rates on these loans.
- INTEREST RATES
Interest rates are calculated on the basis of the type of loan you have. Fixed interest rates have a set percentage that is charged annually. Variable interest rates fluctuate with the market and can go up or down, depending on how it’s performing. For example, if you have a fixed-rate loan, your interest rate will not change until the end of the term. In contrast, if you have a variable-rate loan, your interest rate may change from time to time. If you want to save money on your monthly payments or even save money in total, it is best to take out loans with lower interest rates than those with higher ones.
- LOAN TYPE
Loan type can affect your interest rates. An FHA loan is a mortgage insured by the Federal Housing Authority and in general, these loans offer lower down payment requirements and low-interest rates. VA loans are guaranteed by the Department of Veterans Affairs and don’t require a down payment. USDA loans are guaranteed by the USDA. The FHA and VA loans are a little more lenient. The USDA also has low down payment requirements, but it is only available to rural residents with low incomes.
- PROPERTY LOCATION
The home location can affect your mortgage rates as it determines the rate of interest that you will be paying for your home loan and also the type of home loan you will qualify for. The people living in metro cities have a higher demand for homes than those who live outside this and hence they may need to pay more as their mortgage rates would be higher. Also, the property value and geographical risk play a role here.
THE BOTTOM LINE
Mortgage rates are tied to the basic rules of supply and demand. When more people buy homes, there is a higher demand for mortgages which drives up rates. When fewer people buy homes, there is less demand for mortgages and this drives down rates. If you are looking for a mortgage at a lower rate, it is best to wait until you can get one. Feel free to connect to Drew Mortgage Associates, one of the leading Massachusetts mortgage companies for competitive mortgage rates. We are here to make your home buying journey blissful with hassle-free mortgage approvals and processing. Get in touch today!