November 2019

How Mortgage Rates Work

Thinking of a ReFi and wondering how Mortgage Rates work? Well, there are seven variables that work towards determining Mortgage Rates. Let’s hone-in to learn more about sculpting Mortgage Rates.

  1. Current Market Trends: How the market is doing can determine the baseline for Mortgage Rates. Rates can fluctuate from day-to-day depending on changes in the Market- causing a lack of control over the end of Lenders and borrowers. However, borrowers may have options (you’ll see further down on the list; #5 to be specific).

To be more specific, market trends are reflected by the following:

  • Job Trends (growth or recession)
  • Inflation: Rising inflation is often accompanied by rising interest rates because when prices go up, the dollar loses buying power.
  • Reactions to the economy by the Federal Reserve
  • Stock Prices
  • Retail Sales
  • Home Sales
  1. The Property Itself: Your Rate can depend on the type of property you’re purchasing, as well as aspects of the Property. Whether your property is going to be utilized as a permanent residence, a vacation property, or if it’s a condo or a single-family can make a difference in the Rate you’re given. Also, the location itself can determine how high your mortgage loan amount can be.  
  1. The Mortgage Type: The term of your Mortgage loan and whether or not it’s a fixed-rate (meaning the Mortgage Interest Rate remains the same for the life of the loan) or an adjustable-rate (ARM) can help determine your Mortgage Rates. It’s also possible to lock in a rate when obtaining a loan for a set amount of time and, once that time expires, the rate may change to a “floating rate” (an adjustable rate).
  1. Your Credit Score: Your credit score is essential in determining what kind of Rate you can get on your loan. The higher the score (the more positive your credit is) will help you in securing a much better interest rate on your mortgage. Also, in conjunction with your credit score, your DTI (Debt-to-Income Ratio) can be a deciding factor on what kinds of mortgage (and rate) you can obtain. The lower the DTI number, the lower the debt (and the better chances of getting a better interest rate and/or APR).
  1. Points and/or Credits: You can choose to use Points at closing (paying a percentage of the total mortgage out-of-pocket) to buy-down the rate (pay more upfront in exchange for a lower monthly interest rate), or you can do a 180 and use Lender Credits to pay less upfront in exchange for a higher monthly interest rate (Therefore, giving you more control over your rates; now the cryptic parenthetical in #1 on the list makes sense!).
  1. The Loan Term: In general, shorter-term loans have lower Mortgage Interest Rates (and sometimes lower overall costs), but they can have higher monthly payments. A lot depends on the specifics—exactly how much lower the amount you’ll pay in interest and how much higher the monthly payments could depend on the length of the loans you’re looking at, as well as the Mortgage Interest Rate.  
  1. The Lender: Every Mortgage Lender is different in what rates they’ll give you. With that being said, this is why it’s important to shop around and compare Mortgage Lenders to get the best Mortgage Rate possible.

To view today’s rates, visit us here.

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