What Affects your Mortgage Rates

There are many things that affect your mortgage rates. Your creditworthiness is probably the biggest factor that affects your mortgage rates. If you are a high risk borrower, the bank or lending institution from which you are obtaining a mortgage will take this into account. In order to offset the risk of you defaulting on the mortgage, the bank or lending institution will charge you a higher interest rate on your mortgage. Therefore, over the life of the mortgage, you will literally pay thousands of dollars more than you would if you had a good credit score.

Although your credit score is one of the biggest factors that a bank or lending institution takes into account when determining your interest rate for your mortgage, it is not the only factor. Another factor is the length or term of the loan. The longer the term of the loan the higher your interest rate will be. As such, a 30 year mortgage will have a higher interest rate than a 15 year mortgage.

In addition to the term of the mortgage, the type of mortgage that you obtain will affect your interest rate. If you obtain a fixed mortgage rate, the rate that you get when you obtain your loan will be the interest rate that you pay for the life on the loan (unless you refinance your loan). On the other hand, an adjustable rate mortgage has a fixed interest rate for a set amount of time (for example, it can be 1 year, 3 years, or even 5 years). After this set amount of time passes, your mortgage interest rate resets to a new interest rate. Sometimes this interest rate is higher and sometimes it is lower.

The economy is another thing that will determine you interest rate. In a good economy when a lot of people are borrowing money, your interest rate will be higher because the Federal Reserve interest rates will be higher. On the other hand, in a bad economy when nobody is borrowing money, your interest rate will be lower because the Federal Reserve interest rates will be lower.

The amount of your loan is also another factor taken into consideration. Therefore, the amount of your down payment, if any, becomes part of the equation.

Basically, there are many factors that can affect your mortgage interest rate. As such, you should consider all of these factors when talking to a bank or lending institution about obtaining a mortgage.