What Can Affect Your Rates?
What can affect your rates?
Here are 15 Factors That Impact Your Interest Rate for a Mortgage
1. Credit Score
Your historical ability to repay a mortgage is very important. The higher your credit scores the lower your rate and vice versa.
2. Transaction Purpose
Purchases, Rate and Term Refinances, and Cash-Out Refinances all have different levels of risk and therefore different interest rates.
3. LTV & CLTV
This stands for “Loan-to-Value” and “Combined-Loan-to-Value.” The more you put down or the more equity you have the lower your rate will be over the life of the loan. At specific levels your rate will change based on how close our loan balance is to the purchase price or value of the property.
4. Loan Amount
Both the government and each individual county have different loan limits. Conforming, High-Balance, and Jumbo are some of the more traditional break-outs but these will vary.
5. Loan Program/Type
FHA, VA, Conventional, VA, USDA, Construction, Second Mortgage all carry different rates and terms.
6. Length of Loan
The shorter the length of time until you repay the full principal balance the cheaper the rate. 15 year loans have lower rates than 20 year loan, which are lower than 30 year loans.
7. Rate Lock Period
The shorter you can lock and close the loan the cheaper the rate will be. The longer you lock the rate and tie up money the more expensive it becomes. This can vary between 15-60 days.
8. Loan Product
Fixed rate, Adjustable rate, Balloon, an Buy-downs are various products within the length and program or type of loan that can affect the rate. In general, the more risk you take on yourself the lower the rate.
9. P&I vs. Interest Only
Will your payment include both principal and interest or just interest? The latter has lower rate but you won’t pay down the balance over time.
10. Occupancy Type
Investment properties and second home have higher rates than primary residences.
11. Property Type
Single family, townhouse, condos, duplex and new construction properties each may have different levels of risk and therefore different rate adjustments.
12. DTI Ratio
Your Debt-to-Income ratio will possibly affect which programs you qualify for as well as any possible mortgage insurance. Together, this could affect your ultimate interest rate.
13. Waived Escrows
If you choose to waive escrows and pay annual taxes and insurance yourself you will increase your rate.
14. Origination/Discount Points
Buying down the rate or paying points will give you a lower rate but could cost you more upfront. Always consider the savings vs. cost.
15. Pre-Payment Penalty
Loans with a prepayment penalty will have a lower rate because the risk of paying off the loan is offset by the penalty you might have to pay during the specified period.