Rates have been at, generally, historical lows for the last few years. But, that does not mean that every borrower will get the exact same interest rate. When you are applying for a home loan it is important to understand that various factors can impact what mortgage rate you get. Though some factors are out of your control, some you have direct influence over. By being aware of these factors, you can take steps to give yourself the best possible interest rate which can ultimately save thousands of dollars over the life of the loan. Below are 3 factors that every borrower should be aware of that can affect your mortgage rate.Verify your mortgage eligibility (Aug 12th, 2020)
3 Factors to Be Aware of That Can Affect Your Mortgage Rate
1. The Bond Market
No lender has control over the bond market but it will directly impact the mortgage rate you get when you close on your home loan. Zing! by Quicken Loans explains how the bond market impacts your mortgage rate, “When you close on a mortgage, very rarely does a single lender hold your loan for 30 years anymore…most loans are packaged together in something called mortgage-backed security and sold to investors in the bond market. Single mortgage-backed security typically contains many loans that are grouped together based on specific loan characteristics… As an example, mortgage-backed security might be made up of 10 Freddie Mac loans with a term of 15 years and credit scores of 720 or more…Mortgage rates are directly affected by the purchase and sale of mortgage bonds. The more mortgage bonds that are being sold, the lower the yield has to be in order to get someone to buy. When there’s less demand, there are higher yields. In general, the lower the yield on mortgage bonds, the lower your rate.”Verify your mortgage eligibility (Aug 12th, 2020)
2. Credit Score
Your credit score is one of the most influential factors in your mortgage rate and because of this, you should do everything you can to have the highest credit score possible before applying for a mortgage loan. Lenders want to feel confident that you will be able to repay your loan so they will look at your credit score as well as how many credit account you have, have you utilize your credit, your length of credit history, etc. Check your credit score before submitting your application and see if there are any errors that need to be corrected or if there are any steps you can take to boost your credit score.
3. Mortgage Loan Specifics
The specifics of your mortgage loan will directly impact your interest rate. Your down payment amount, your loan type, and your loan length are all major players in what mortgage rate you ultimately get. If you have a larger down payment you are more likely to get a lower mortgage rate. If you have a shorter loan length you are more likely to get a lower mortgage rate. If you have an ARM loan, your rate for the fixed period of the loan will be lower than a 30-year fixed-rate mortgage. And so on.