Mortgage Rates Archives

5 Key Factors That Affect Your Mortgage Rate Many first time home buyers often wonder what factors determine their mortgage rate. Is it their credit score? Is it the type of loan chosen? Is it the size of the loan?

The truth is, there are many factors at play. Mortgage interest rates are not standardized across the board, so they vary from lender to lender and from borrower to borrower.

Here are 5 common factors that determine or affect your mortgage interest rate:

1. Default Risk

Risk is a key consideration when determining mortgage interest rates. Banks and other lenders are in a risky business because there is always a chance of a borrower defaulting on their loan repayments. This is known as default risk.

Banks and lenders therefore charge riskier borrowers higher interest rates to discourage them from borrowing, as well as to be able to average their returns between risky and non-risky borrowers. Risk is one of the prime factors that influence your mortgage rate.

2. Credit Score

Perhaps you are wondering how banks and other lenders determine if you are a risky or non-risky borrower. There are many tools they can use, but your credit score plays a big role. You credit score is based on the borrowing history in your credit report, which summarizes all details about your credit card balances and timely bill repayment.

If you pay your bills on time and sustain relatively low credit scores, your credit score stays high and lenders view you as a low-risk borrower. Consequently, your mortgage interest rates tend to be lower than a person with a low credit score.

3. Type of Property You Are Purchasing

Some properties have a higher risk of default compared to others. This is determined by analyzing the historical likelihood of default on different properties; lenders use this analysis as the reason to charge higher mortgage interest rates on riskier ones.

For example, vacation homes tend to have a higher rate of default compared to single-family homes and lenders charge higher rates for such homes.

4. Size of Down Payment

The amount of money you pay upfront on the mortgage also influences its interest rate. A large down payment gives you a lower LTV ratio (loan-to-value), which also decreases the level of risk borne by a lender. A small down payment, on the other hand, gives you a high LTV ratio and thus a higher mortgage interest rate.

5. Loan Amount

A large loan bears a higher risk than a smaller one simply because there is more money at risk. Most lenders therefore charge higher interest rates on large property loans as compared to smaller ones.

All in all, different lenders offer different rates depending on their style of operation, appetite for risk, or competitiveness in the market. It’s important to search intensively for offers from different lenders for the best mortgage rate. Contact your mortgage professional to help you find out more about mortgage rates and what that means for your next home purchase.

Last week’s economic news included releases on new and existing home sales along with weekly readings on mortgage rates and first-time jobless claims.

Home Sales Fall Due to Slim Supply of Homes

December sales of previously-owned homes dipped to an 18-year low with a reading of 5.57 million sales on a seasonally-adjusted annual basis. Pre-owned home sales were expected to reach 5.73 million homes based on November’s downwardly- revised reading of 5.78 million sales. December sales were 3.6 percent lower month-to-month, but were 1.10 percent higher year-over-year.

Analysts credited the shortage of sales to tight inventories of homes for sale. Low inventories of homes for sale have worsened, a situation that sidelines would-be buyers due to the slim selection of homes, rapidly rising prices and buyer competition.

Lawrence Yun, Chief Economist of the National Association of Realtors, said that December sales were lower in all four regions tracked by his organization. The Northeast had 7.50 percent fewer sales; The Midwestern region has 6.30 percent fewer sales in December and the South and West had 1.70 percent and 1.60 percent fewer sales.

Available homes reached a 3.20-month supply; the National Association of Realtors typically views a six-month supply of available homes as average. The national median home price was $246,800 in December and was 5.80 percent higher year-over-year.

Sales of new homes were also significantly lower in December, at an annual rate of 625,000 sales. Analysts expected 679,000 sales and November’s reading showed a sales pace of 689,000 sales.

New Home Sales Fall in December

Sales of new homes were lower in December but were strong overall for 2017. The Commerce Department reported 625,000 sales of new homes for December as compared to expectations of 680,000 sales and November’s downwardly revised reading of 689,000 sales of new homes.

The annual sales pace of new homes was 9.30 percent lower in December than in November, but the sales price of new homes increased 14.10 percent year-over-year. The median price of a new home was $335,400, which was 2.50 percent higher year over year. A 5.6 month supply of new homes for sale reflected healthy market conditions for new homes.

Mortgage Rate, New Jobless Claims Higher

Mortgage rates rose for the third consecutive week with the average rate for a 30-year fixed rate mortgage 11 basis points higher at 4.15 percent; the average rate for a 15-year fixed rate mortgage was 3.62 percent and was 13 basis points higher. 5/1 adjustable rate mortgages averaged 3.52 percent and rose by six basis points. Discount points averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages. Higher mortgage rates were attributed to an increase in the 10-year Treasury yield, which was at its highest rate since 2014.

First-time jobless claims rose last week after reaching a 45-year low the previous week. 233,000 new claims were filed last week; analysts expected a reading of 240,000 new claims filed against the previous week’s reading of 216,000 new jobless claims filed. Bad weather, two holidays in January and seasonal layoffs at the end of the holiday shopping season contributed to the increase in new jobless claims.

What‘s Ahead

This week’s scheduled economic reports include readings from Case-Shiller Home Price Indexes, homeownership rates, and inflation. The Bureau of Labor Statistics will release monthly reports on private and public-sector jobs and the national unemployment rate. Weekly readings on mortgage rates and first-time jobless claims will also be released.

5 Key Factors That Affect Your Mortgage Rate

What’s Ahead For Mortgage Rates This Week – January 29, 2018

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