Your Mortgage Rate: What Influences It?



Most, if not all will agree that mortgage rate is the key factor mortgage borrowers look into before availing themselves of mortgages. Mortgage rate is defined as "the standard interest rate given by mortgage lenders" and "the rate of interest paid on the mortgage loan expressed as a percentage".

For Americans who want to get a mortgage, it is essential to know what are the mortgage rates that are applicable in a loan. This is very important because mortgage rate is the deciding factor that dictates the total amount of the mortgage plan and which makes a difference in various loans. Knowing the lowest and the best mortgage rate can help one save thousands of dollars in interests alone.

Aside from the various mortgage rates of lending companies in the US, the mortgage rate in the country varies depending also on the state where the borrower wants his house built.

Because of the key role mortgage rate can play with a loan, it is important for borrowers to find out the current mortgage rates before settling with a mortgage plan. Mortgage rates are seldom steady and it is difficult to determine if these will go down or up but there are certain economic indicators that can be used as point of references when the mortgage rate will be affected.

It has been noted that the rise and fall of bonds and Treasury notes has a direct relationship with interest rates that include mortgage rates. Knowing this relationship can help a borrower determine if getting a mortgage in a certain period of time is feasible for him financially. It will also help him get lower mortgage rate and help him save some costs.

Aside from all these, when one wants to obtain a mortgage, one must also understand that several factors affect the mortgage rate one will have from his loan. These factors that affect mortgage rate are:

a. Amount of loan. If the amount of loan exceeds the loan limits created by Freddie Mac and Fannie May for conforming loans, the mortgage rate increases.

b. The length of the loan. Shorter loans will mean a lower mortgage rate but higher monthly payments. Nevertheless, having shorter loans will assure you that you will be able to keep thousands of dollars later.

c. Down payment - A higher nonpayment greater than 20% - will give the borrower the best possible mortgage rate. Higher mortgage rate is applied to down payments of 5% or less

d. Closing costs. It is better if the borrower pays the closing cost than let the lender pay this. It is usually the case that borrowers, who don't want to pay all of the closing costs, get a higher mortgage rate applied to his loan.

e. Adjustable Rate. ARMs or Adjustable Rate Mortgages can give a borrower a lower mortgage rate on the start of the term but payments will also increase as mortgage rate increases over the next period of years.

f. Credit quality. If a borrower has a good credit standing, it usually follows that he gets approved for lower mortgage rate.

g. Income Level. Aside from good credit standing, borrowers who have monthly income that surpasses their monthly credit obligations are approved for lower mortgage rate. Borrowers with credit reports but have monthly incomes that barely cover their credit obligations will not be given the lowest available mortgage rate.