It’s fairly easy for you as a borrower to find out what the current mortgage rates are in your state; those numbers are determined by the current market and the Federal Reserve. But what makes that rate skew higher or lower for your particular loan? While lenders are prohibited from discriminating based on gender, race, ethnicity, national origin, religion, familial status or disability, they can consider several factors in determining your interest rate, including:
5 Things That Impact Your Personal Interest Rate
- Credit score. It shouldn’t come as a surprise that a borrower’s credit rating affects their interest rate. Since this number is based on your history of bill payments and credit extension vs. availability, your credit score is a good way for lenders to gauge how much of a risk you might be as a borrower.
- Loan type and program. Different rates often apply for different types of loans, as well as different loan terms.
- Type: Though there are a seemingly infinite number of loan types, most fall under the category of Conforming or Non-Conforming (a/k/a Jumbo), Conventional or Government (such as FHA and VA).
- Program: As with loan types, there are many loan programs available to borrowers. That being said, the majority of residential mortgages can be categorized as fixed rate, adjustable rate, and interest-only. Loans with adjustable (or variable) rates have lower interest rates, however those rates will rise and fall depending on overall market conditions.
- Eligible borrowers can choose to pay off their home loan over a term of either 15 years or 30 years. While payments will obviously be higher with a 15-year loan, those who choose this option benefit from a lower interest rate.
- Primary Residence vs. Investment Property. If the loan you are applying for is to pay for a home you intend to occupy, you will generally pay a lower interest rate than if the home is an investment property you plan on renting out.
- Depending on your financial situation, you may want to take advantage of either positive or negative points.
- Borrowers can purchase positive points (also called discount points), to “buy down” their interest rate. In order to buy your rate down one point, you must make an upfront payment of one percent of the total loan amount.
- If borrowers are unable or unwilling to pay the closing costs associated with a home loan, they may be eligible for negative points, wherein the lender will pay those closing costs in exchange for a higher interest rate.
If you are in the market to apply for a home loan and have some questions about how interest rates can effect you, call Cliffco Mortgage Bankers at (516) 408-7300 or fill out the contact form here.