Once you’ve qualified for a mortgage, your lender will provide you with a loan estimate. Include in this estimate is the mortgage rate, which is the interest that you will pay annually against the total balance of your loan. Rates, as determined by the lender, are either fixed or adjustable (variable is another term used). Fixed mortgage rates mean your interest is the same throughout the loan, while an adjustable-rate mortgage features an interest rate that can be changed after a certain period. With an adjustable-rate mortgage, your monthly payment can decrease OR increase.
How Your Mortgage Rate is Determined
Lenders use multiple factors in a borrower’s mortgage application to determine what their rate will be. These factors are used to determine the risk faced by the lender when approving an application. If the lender feels that an application is higher risk, they’ll likely approve a higher rate to improve their chances of recouping the loan quicker.
One of the most important factors that borrowers can use to influence their mortgage rate is their credit score. The higher your credit score, the more reliable you appear to a lender. If your lender views you as a borrower they can count on to make their monthly payment on time, you will likely get a lower rate.
External Factors that Go into Mortgage Rates
While mortgage rates vary from buyer to buyer, there are a couple of market indicators that you can look at to get a rough idea of the type of interest rate you can expect. The prime rate is the lowest average interest rate a bank offers for credit and is used for interbank lending.
Another indicator is the 10-year Treasury bond yield, which is a useful indicator of how the market is faring, in general. Mortgage rates typically follow a parallel pattern to this yield, meaning if the yield rises, so do mortgage rates (and vice versa).
To learn more about mortgage rates, the mortgage experts at VIP Mortgage Group can help you! Our useful home loan calculator can help you determine your total mortgage payment and creates a monthly payment schedule for you to follow.Contact us today to learn more about how we determine mortgage rates and what factors from your application go into the process.