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The 10 factors that affect your mortgage rate (and what to do about them)

Gina Pogol
The Mortgage Reports contributor

Knowing what factors affect your mortgage rate will save you money

You see mortgage rates advertised on television, hear commercials on the radio, and view mortgage rate sheets at real estate offices.

You can compare these advertised rates when choosing a lender, but it’s unlikely that they’re realistic or accurate.

That’s because your mortgage rate is unique to you. To know what rate you really qualify for, you’ll have to get personalized quotes from lenders and compare them.

Get a personalized rate quote. Start here (Dec 7th, 2019)

 What affects mortgage rates?

Your mortgage rate depends on your own financial portfolio and the home you plan to buy. But that’s not all. Mortgage rates also reflect movements in the U.S. housing market and the global economy — which is why they’re in constant flux.

  • Economy – The global financial picture drives all interest rates, including mortgage rates
  • Lender pipeline – The amount of business a lender is currently processing can impact their rates
  • Property location – State laws can drive up lender costs or keep them down
  • Home use – Primary residence, vacation home, or rental?
  • Property type – Single-family, multi-family, condo, mobile, co-op, etc.
  • Loan-to-value – Borrowing less (and putting more down) gets you a better rate
  • Credit score – Better credit means a lower interest rate
  • Loan features – Term, documentation, rate adjustment, interest-only payments, etc.
  • Points – Paying more up front for “discount points” lowers your rate
  • Loan amount – Very high or very low loan amounts can mean higher rates

The lowest advertised mortgage rate will probably apply to you if you have a low loan-to-value ratio and great credit. Everyone else will be subject to risk-based pricing adjustments.

You’ll only know what your rate is by getting a custom mortgage quote from a lender based on your unique borrower profile.

Get a mortgage rate quote today (Dec 7th, 2019)

Mortgage rates change constantly

Another challenge you’ll face when shopping for a mortgage is that fact that a quote you get on the phone right now may be invalid 30 minutes from now.

That’s right — you could be one Presidential tweet away from a much better or worse rate, because political developments can hit the economy quickly.

Mortgage rates change on a daily basis. If your closing date is in sight, lock a low rate to protect yourself against spikes.

Want proof? Within hours of President Trump tweeting that the Federal Reserve should cut rates to zero or below, interest rates fell. This means the rate quoted to you today might be even lower tomorrow — or higher.

If your closing date is in sight and you have a favorable rate quote in hand, lock it in to protect yourself against unexpected spikes.

Taking control of mortgage rate factors

You can’t control many of the things that impact your mortgage rate. (Unless, maybe, you’re the president of the Federal Reserve or POTUS.)

The good news is that the variables you can control have the most impact on your rate. They are:

  • Property type — If deciding between two homes, incorporate the relative cost of financing when comparing them
  • Loan-to-value (LTV) — Putting more money down improves your chances of loan approval, cuts your loan fees and gets you a lower mortgage insurance rate (if applicable)
  • Credit score — It may be worth it to put off buying a home and concentrate on raising your FICO score for a lower rate
  • Loan features — Choosing a loan with a shorter fixed-rate period, or one with a 15-year amortization instead of a 30-year term can save you a lot in interest
  • Points — You can buy a lower interest rate by paying more up front, if you have expendable cash on hand
  • Loan amount — It might be smarter to get a conforming first mortgage with a purchase-money second mortgage than taking out a more-expensive jumbo home loan

By understanding the factors you can and can’t control, you can get your best mortgage rate when you buy or refinance a home.

What are today’s mortgage rates?

Current mortgage rates are hovering just below 4%, which is incredibly low compared to recent history. But home prices are soaring in much of the US.

To get a low rate and make your home as affordable as possible, get several custom quotes from competing mortgage lenders and choose the lowest bidder.

Verify your new rate (Dec 7th, 2019)

Learn more about what affects your mortgage rate