How Are Mortgage Rates Determined?

Getting a mortgage can seem like a daunting experience for those who are doing it for the first time. However, it doesn’t have to be stressful or difficult. Take the time to do a little research and learn the basics and you’ll be much more prepared to take on your own mortgage note. That way, you’ll spend less time worrying and more time enjoying your new home.

Some of the factors that impact mortgage rates are within your control. Others are not. Understanding all the different factors and how they impact your mortgage rates will help you make a better buying decision. Here is what you should know.

Factors That Determine Mortgage Rates

Several different factors go into determining mortgage rates. Some are within your control while others are not. By understanding these different factors and their role, you can have a better idea of how your mortgage has been calculated and what you can expect to pay. Essentially, it’s all a judgment of risk based on market conditions and borrower qualifications.

Factors You Control

The factors that determine mortgage rates within your control include things like:

·  Credit score

·  Loan-to-value ratio

·  Type of loan you choose

·  The type of property you’re buying

If you have a high credit score, you will be able to get lower interest rates because you are deemed less of a financial risk. If, however, you are buying a high-risk property or a second home, you may be given higher interest rates because there is a bigger sense of risk involved in the loan and its repayment. Most of the time, mortgage rates are set by factors outside of your control.

Factors You Cannot Control

There are several factors outside of your control when it comes to determining mortgage rates. Those include:

·  Inflation

·  The Federal Reserve

·  Job growth

·  The economy

·  The lender

Since you cannot control these factors, the best thing that you can do is to educate yourself about them so that you know what to expect with your own mortgage loan. You may also choose to delay buying a home (or buy sooner) based on projected mortgage rate increases or market changes.

Do All Lenders Have the Same Rates?

Mortgage rates typically have a range that is expected, but will vary from one lender to the next based on their level of risk and overhead costs, as well as other factors. Lenders may have higher rates when business is high so they aren’t overwhelmed with unqualified borrowers, or they may reduce rates a bit to increase business during slow times.

Shopping around will help you compare the different rates that you have to choose from and ensure that you get a mortgage that you can afford. It will also allow you to see that while there is some variation in mortgage rates, it doesn’t fluctuate as much as some people think, for the most part.

How to Get a Good Mortgage Loan

In addition to shopping around, educating yourself about mortgage rates is a great start. You can also use online mortgage calculators to get an idea of what rates you would be offered before you apply, saving you a lot of time and trouble. If you’re in the market to buy, you might want to keep an eye on the real estate market and the changes in mortgage loan rates and terms so that you can buy at the exact right time.

Whatever you do, never take on a mortgage with a rate that you can’t afford or other terms that don’t fit your needs—there’s a mortgage out there for you if you take the time to look.