Your mortgage rate depends on your own financial portfolio and the home you plan to buy. But that’s not all. Mortgage rates also reflect movements in the U.S. housing market and the global economy — which is why they’re in constant flux.
- Economy – The global financial picture drives all interest rates, including mortgage rates
- Lender pipeline – The amount of business a lender is currently processing can impact their rates
- Property location – State laws can drive up lender costs or keep them down
- Home use – Primary residence, vacation home, or rental?
- Property type – Single-family, multi-family, condo, mobile, co-op, etc.
- Loan-to-value – Borrowing less (and putting more down) gets you a better rate
- Credit score – Better credit means a lower interest rate
- Loan features – Term, documentation, rate adjustment, interest-only payments, etc.
- Points – Paying more up front for “discount points” lowers your rate
- Loan amount – Very high or very low loan amounts can mean higher rates
The lowest advertised mortgage rate will probably apply to you if you have a low loan-to-value ratio and great credit. Everyone else will be subject to risk-based pricing adjustments.
You’ll only know what your rate is by getting a custom mortgage quote from a lender based on your unique borrower profile. And, typically better personal service from a local mortgage broker that will give you personal service with local interest in the community – they have more to lose if they do a bad job!!!
Taking control of mortgage rate factors
You can’t control many of the things that impact your mortgage rate. (Unless, maybe, you’re the president of the Federal Reserve or POTUS.)
The good news is that the variables you can control have the most impact on your rate. They are:
- Property type — If deciding between two homes, incorporate the relative cost of financing when comparing them
- Loan-to-value (LTV) — Putting more money down improves your chances of loan approval, cuts your loan fees and gets you a lower mortgage insurance rate (if applicable)
- Credit score — It may be worth it to put off buying a home and concentrate on raising your FICO score for a lower rate
- Loan features — Choosing a loan with a shorter fixed-rate period, or one with a 15-year amortization instead of a 30-year term can save you a lot in interest
- Points — You can buy a lower interest rate by paying more up front, if you have expendable cash on hand
- Loan amount — It might be smarter to get a conforming first mortgage with a purchase-money second mortgage than taking out a more-expensive jumbo home loan
By understanding the factors you can and can’t control, you can get your best mortgage rate when you buy or refinance a home.