Factors that determine mortgage rates

Everyone wants the lowest mortgage rate but what factors influence your rate? Knowing these factors can help you find the lowest rate possible. 

One factor that determines mortgage rate is your credit score. People with higher credit scores receive lower interest rates than those with lower credit scores. 

Another factor that determines your rate is your home location. Lenders offer different rates based on where you are located. Inflation plays a big role in mortgage rates. The rise in prices due to inflation affects lenders because they have to keep interest rates at a level. In periods of higher inflation, mortgage interest rates tend to rise. 

Rates of economic growth affect mortgage rates as well. Because of economic growth, there will be higher wages and more spending, this includes people seeking mortgage loans for home purchases. The upturn in the demand for mortgages will increase mortgage rates. 

Other factors that will affect your mortgage rate are home price and loan amount. The amount you need to borrow for your mortgage loan is the home price plus closing costs minus your down payment. With some loans, your closing costs and mortgage insurance may be included in the amount of your mortgage loan. Down payments affect rates because a larger down payment means a lower interest rate. If you can put 20% or more down, you will get a lower interest rate.  If you cannot put this much down, you will be paying mortgage insurance. 

The Federal Reserve greatly affects mortgage rates. They can raise or lower short-term interest rates, which affects mortgage rates. When the Federal Reserve raises rates, it becomes more expensive for banks and lenders to borrow money, which means increased rates. When they lower rates, it becomes cheaper to borrow money, resulting in lower mortgage rates, 

The term of your loan is how long you have to repay the loan. Shorter-term loans have lower interest rates and lower overall costs, but higher monthly payments.  Not only does your loan term affect your rates but so does your loan type. Rates can be different depending on what loan type you have. It is always best to talk to multiple different lenders so you can have a good understanding of all your options. 

By: Olivia Banham