3 Best Factors Affecting the Current Mortgage Rate this year
Most borrowers will turn to the lender that offers the lowest current mortgage rates when looking for a lender to borrow a mortgage from. A low-interest rate means a cheaper monthly payment and you will be saving money over the loan period.
However, familiarizing yourself with how mortgage rates are determined can help you determine some aspects like your chances of being approved, or why you might have been denied the mortgage. Here are some of the factors that determine mortgage rates.
1. Credit score
2. Current interest rates in the market.
One of the main factors that determine a mortgage rate is the borrower's credit score and report. This is a summary of your loan history, which includes any delayed payments, inquiries, loans, and credit cards. A credit score serves to give a lender an idea of how risky a borrower is. A less risky borrower is one with a high credit score.
A lender will be more comfortable awarding a lower interest rate to a borrower with a high credit score. Before you sign up for a mortgage, you have to examine their credit report, which is freely available from credit bureaus every 12months. Once obtained, you have to ensure there are no inconsistencies on your report, and that everything is correct.
If you discover inaccurate reports on your history, then you have to take it up with the credit bureaus, to make sure your reports are correct when a lender examines them.
Current interest rates in the market
The Federal Reserve and the housing market also have an impact on mortgage rates. The Federal Reserve does not set mortgage rates, but set federal fund rates, which are the rates that financial institutions and organizations will loan funds to each other.
A more expensive fund rate makes it more costly for institutions to borrow from one another. This can increase interest rates on products such as mortgages to allow for higher federal fund rates.
The location of the property you intend to purchase can also affect your mortgage rates. This depends on the state, and whether your property is in an urban or rural place. One reason why location can largely affect your mortgage rates is that states have different laws regarding repossession, which greatly affects how the borrower can foreclose on the defaulted property.
Other borrowers in the same location also affect the rate since lenders will consider the rate at which borrowers default in the area.
Moreover, a higher down-payment commonly warrants a lower interest rate when buying a home. A lender will see a borrower as less of a risk if they are putting in more towards the property in advance, which will reduce the amount of money borrowed. If the lender is giving fewer funds towards a property, this means lower risk and is more preferable for a lender.
A borrower giving a 20% down-payment for a property may merit a lower rate than a borrower who is producing a 5% down-payment. Also, a down-payment of less than 20% will require you to pay Private Mortgage Insurance (PMI), which will also increase your overall payment.
A mortgage is probably the largest debt you are going to have to pay in your life over a long period. It is, therefore, important to get familiar with mortgage rates, the factors influencing these rates as well as your eligibility for a mortgage.
You also have to take into consideration the factors influencing your eventual overall payment. Knowing all the important factors will help you choose the best rates and be comfortable paying off your mortgage.