There are several factors that play a role in what kind of mortgage rates are available to you on a home purchase or refinance. Some factors are based on the market, others are based on the circumstances surrounding the specific mortgage.
The housing market and overall economy play a big role. The Federal Reserve Board controls the prime lending rate, which is the typical rate banks will charge one another or preferred customers. Mortgage rates, as well as rates on other types of loans or credit cards often use the prime rate in order to decide how much interest to charge on a home purchase or home equity loan. They may also be based on how the 10 year U.S. Treasury Note is doing. Typical mortgages often range 1.25 – 2.75 percentage points higher than whatever the U.S. Treasury notes are yielding.
While many watch for favorable market conditions before purchasing a home, people have a lot more control when it comes to their own role in determining their mortgage rates. Individual rates are calculated based on credit history/score, where the home is located, the price of the home, the down payment, the length of the loan term, whether the rate is fixed or adjustable, and whether the borrower qualifies for special loan options, such as an FHA loan or a VA loan.
The Role of Credit
Generally speaking mortgage rates on a home will be lower for a borrower that has a good credit score and history. For example, if your credit score is around 800, your mortgage rate will be much better than someone who has a score of 600. It is a good idea to have a sense of where you stand before you get too far into the process. Getting your own credit report is a good start. This will give you a sense of your own credit history. If your score isn’t where you want it, Starboard Financial can often help potential borrowers find ways to improve their score in order to get a better rate.
Location and price of the home
The recommended mortgage rates vary by state, so where you want your home makes a difference. How much a home costs is also a factor. Very high end homes can sometimes bring high end mortgage rates and in some cases small loans have higher rates too.
Loan Term, Down Payment and Interest Rate Type
Borrowers generally have a say in how fast they want to pay off their mortgage. While 30 year fixed mortgages are most common, a 15 year fixed mortgage normally has a lower rate. Mortgage rates can look even lower at first to those who have an Adjustable Rate Mortgage, however these rates can jump quite a bit depending on what the market is doing when the adjustable rate expires. Some situations lend themselves better to adjustable mortgages. If you expect a better job, a big improvement in your credit, or need a lower interest rate while you are still selling your old home, an adjustable rate might make more sense.
Qualifying for a Special Loan Group
The highest mortgage rates usually apply to those who are getting a conventional home loan, but many people qualify for a special loan such as an FHA loan or a VA loan. These types of loans have set conditions that must apply to a specific loan, such as carrying a mortgage under a certain amount and living in the home as a primary residence. If those conditions are met, the borrower can usually get a lower mortgage rate vs. a conventional loan.
If you are looking into delving into a new mortgage, we at Starboard Financial can help you see what kind of mortgage rates you can expect and help you find ways to make them better if necessary. Contact us to learn more about your options.