These Factors Affect The Mortgage Rate You'll Be Quoted

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These Factors Affect The Mortgage Rate You'll Be Quoted

26 December 2017
 Categories: Finance & Money, Blog


One of the most important things to consider when you buy a new home is the mortgage rate. The mortgage rate affects the monthly payments you'll make on your home for years to come. You want the lowest rate you can get because that means you'll have lower payments. Here are a few things that affect the rate you'll be quoted.

The Economy

Several factors in the economy come together to influence current mortgage rates. The rates change slightly on a day-to-day basis. You can generally find the daily mortgage rates in financial sections of newspapers or on financial websites, and if you follow them daily, you'll notice a trend. This lets you know if rates are creeping up or trending back down. However, the mortgage rates you see quoted in financial reports are not necessarily what you'll be offered when you apply for a loan since personal factors come into play as well.

Personal Finances

Just like with any other type of loan, your personal credit and financial situation affect the interest rate. If you're viewed as a high-risk borrower, your mortgage rate will be higher than someone with excellent credit. Therefore, it's usually a good idea to take time to get your credit in order before you apply for a home loan. The amount of your down payment could also affect your mortgage rate because if you have a large down payment, you're seen as less of a risk to a lender. In addition, your mortgage lender will look at your employment history and income in relation to debt to determine if you qualify for a mortgage, and if you do, what your rate will be.

Type Of Loan

Not all mortgages are the same and different types have different rates. Two common mortgages with different rates are the fixed and variable-rate options. When you take out a fixed-rate mortgage, your payments will be the same every month for the life of your loan. Thirty years from now, you'll be paying the same, which could be a big benefit when the cost of everything else is higher. Variable-rate mortgages are different in that they have a lower rate initially for a set period of years, but then the rate varies on an annual basis. The lower payments initially are nice, but the future is uncertain with a variable-rate loan. Your payments could skyrocket in the coming years or they could stay about the same. It all depends on the economy. The length of the loan also affects the mortgage rate and the type of loan does too. For instance, VA loans tend to have lower rates.

In addition, different lending institutions have different rates. Although rates are close, they may vary slightly. Even a slight variation could mean a significant amount of money over a thirty-year loan, so shopping around for the best rate is a good idea.