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

Gina Pogol
The Mortgage Reports contributor

Your mortgage rate

You see advertisements 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. Here’s what you should know.

  • Economy – The global financial picture drives all interest rates, including mortgage rates
  • Lender pipeline – That’s the amount of business a lender is currently processing
  • 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 – Lower LTV 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 – In general, the higher the costs, the lower the rate
  • Loan amount – Very high and very low loan amounts can mean higher rates

The best-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 they are by getting a custom mortgage quote from a lender based on your unique borrower profile.

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.

Want proof? Within 20 minutes of the announcement disbanding the President’s business council of company CEOs, interest rates were in a tailspin. This means the rate quoted you by Lender A may not be available when you get a quote from Lender B the next day.

Taking control of mortgage rate factors

If you’re a control freak, the list of factors above may look pretty daunting. That’s because you can only control a few of them!

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 concentrating on raising your FICO
  • 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 upfront, and sometimes this is a good strategy
  • 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

We will cover all of these factors in depth over the next few days. 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 as low as they’ve been in 2017. 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.

Verify your new rate (Oct 15th, 2019)