Mortgage Interest Rates 101

Mortgage Interest Rates 101
Many things affect mortgage rates - which is​ why they fluctuate .​
So it​ pays to​ understand a​ little about how mortgage interest rates are generated .​
The more you​ know about the​ economic factors that change rates,​ the​ more prepared you​ are to​ find the​ perfect home loan at​ an​ interest rate that's perfect for you​ as​ well.
Market Conditions
When the​ Federal Reserve Board raises or​ lowers rates,​ there is​ usually an​ impact on​ the​ rate you​ will get for your fixed rate home loan,​ although it's not as​ direct as​ it​ may seem .​
The Federal Reserve adjusts federal funds rate,​ which is​ the​ rate at​ which banks lend to​ each other .​
When federal funds rate decrease,​ we spend more,​ which can actually increase inflation .​
Mortgage rates tend to​ be longer-term rates that are affected by concerns about inflation,​ as​ well as​ other economic indicators like job growth .​
So it's more accurate to​ say that mortgage rates are indirectly affected by the​ Federal Reserve Board,​ and more directly affected by what happens every day in​ active public markets .​
The market sets the​ interest rate,​ and then a​ margin is​ added to​ the​ index to​ determine your final mortgage interest rate.
Timing
Since interest rates change daily,​ the​ longer a​ lender locks in​ a​ rate,​ the​ higher the​ risk that the​ market will move against them .​
Therefore,​ you​ pay more (in points) for a​ longer guarantee .​
If interest rates appear to​ be on​ an​ upswing,​ it​ makes sense to​ lock in​ your rate .​
If they are steadily dropping,​ it​ makes sense to​ float your interest rate so that you​ can take advantage of​ a​ shorter lock-in period,​ saving you​ money.
Points
You can often receive a​ lower mortgage interest rate by paying extra points - mortgage costs that are up-front rather than built into the​ interest rate .​
Each point equals one percentage point of​ the​ total amount of​ the​ loan .​
For example,​ one point on​ a​ $100,​000 loan is​ the​ equivalent of​ paying $1,​000 to​ ensure you​ get a​ lower interest rate that saves you​ money over the​ life of​ your loan.
Credit and Payment History
A less-than-perfect track record may make you​ seem like a​ high credit risk,​ which means you'd only be eligible for higher mortgage interest rate loans .​
If you​ find yourself in​ this position,​ don't worry - we have loans that could still help you​ make your dream a​ reality.
Credit and Payment History
A less-than-perfect track record may make you​ seem like a​ high credit risk,​ which means you'd only be eligible for higher mortgage interest rate loans .​
If you​ find yourself in​ this position,​ don't worry - we have loans that could still help you​ make your dream a​ reality .​
Learn more about Bad Credit Loans.
Debt-To-Income Ratio
Your monthly debt obligations are calculated against your current income .​
The higher the​ ratio,​ the​ higher the​ risk which could mean a​ higher interest rate.
Loan-to-Value
The loan-to-value is​ the​ amount you​ need to​ borrow versus the​ value of​ the​ home you​ want to​ buy .​
The more equity you​ have or​ the​ more money you​ give as​ a​ down payment decreases a​ lender's risk,​ often resulting in​ a​ lower rate for you.
Property Type
Lender risk plays a​ big part in​ your rate .​
For instance,​ a​ loan for a​ single-family home is​ less risky than one for a​ multi-family home because there are fewer variables .​
The less risk,​ the​ better the​ rate.
Occupancy
If you​ plan on​ living in​ your new home,​ you​ will probably get a​ better rate versus a​ loan on​ a​ rental unit,​ which carries more risk for the​ lender.
Loan Amount
The amount of​ money you​ borrow could affect the​ interest rate you​ get.
Mortgage Interest Rates 101 Mortgage Interest Rates 101 Reviewed by Henda Yesti on July 02, 2018 Rating: 5
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