"I Want To Lower My Rate" - Factors Affecting Home Loan Rates
"How can I lower my rate?" That’s one of the popular questions asked by homeowners. Many factors affect home loan interest rates and fees. By looking at your complete financial picture, we can give you a meaningful rate quote that addresses your unique situation.
What Affects Home Loan Rates?
Choose a topic below and learn how it affects home loan rates
- Credit and Payment History
- Debt to Income Ratio
- Loan Amount vs. Property Value
- Property Type
- Occupancy
- Loan Amount
- Property State
- Points
- Market Forces
Credit and Payment History
Making timely mortgage or rent payments is very important. Paying late just once by 30 days or more can affect both the loan and the interest rate offered you. Late payments on credit cards, car payments and other bills can also affect your interest rate and loan amount.
Debt to Income Ratio
Your monthly debt obligations and income are compared to arrive at a debt-to-income ratio when you apply for a loan. The higher the ratio, the higher the loan’s risk, because so much of your income is already required to pay existing bills. You have less money available to take on new debt or pay for day-to-day expenses and emergencies. Lenders often have a maximum ratio that they will allow a borrower to have. Often, the higher the ratio the higher the loan interest rate offered to offset the higher risk. In contrast, a low ratio can help get the lowest rate.Loan Amount vs. Property Value
Loan Amount vs. Property Value
Your loan amount is compared to your property value to arrive at a loan-to-value ratio (LTV). The higher the LTV, the higher the loan’s risk and the loan’s interest rate. On the flip side, because more equity or money down decreases the risks involved with lending, a lower LTV may result in a lower rate.
Property Type
One of the first questions a lender asks involves the type of property you are buying or refinancing. Common types include single-family homes, condominiums, manufactured homes, and multi-family homes. While loans may be available for many different property types, your interest rate will typically be lower for a single-family home than for a multi-family home. It all boils down to the risk involved with making loans on a particular property type. The less risky, the better the rate.
Occupancy
Another question lenders frequently ask concerns occupancy type. Whether your loan is for the home you live in full-time, part-time or rent to others affects the interest rate you are offered. Generally, owners who live in their homes full-time enjoy the best home loan rates, followed by vacation homeowners and property investors.
Loan Amount
Sometimes the amount of money you borrow makes a difference in your interest rate. The market for high-priced properties tends to be less stable than moderately-priced homes, so very high loan amounts are higher priced to compensate for that risk. Loan limits used in the secondary mortgage market also tend to keep interest rates higher for “jumbo” loan amounts.
Property State
Different states have different regulations and requirements that result in varying business costs. For lenders, these costs are frequently passed to the consumer in the form of a higher interest rate. Varying costs mean varying interest rates across the nation.
Points
Borrowers can often receive a lower rate by paying extra points, or up-front fees, at closing. While the discounts to the interest rates may vary, each point paid typically equals 1 percentage point of the total amount of the loan. While this option increases the upfront costs for a mortgage, it lowers the interest rate and monthly mortgage payment.
