How Are Home Mortgage Rates Determined?
by Brandon Cornett
When you apply for a home mortgage loan, the lender will review many aspects of your financial history, and they will offer you an interest rate based on these and other factors. And this brings up one of the most common questions first-time home buyers have: How are home mortgage rates determined anyway?
I won't get too far into the weeds on this one, because there are some confusing things that take place on the "back end" of interest rates. Instead, I'll explain on the basic factors that mortgage lenders use to determine the rates they offer.
Interest rates are driven by the stock market and other financial activities. Many lenders will package up the home mortgage loans they sell, and then sell them as mortgage-backed securities through the stock market. So the interest rate that financial institutions charge each other will also influence the mortgage rate offered to you.
Your credit score is another big factor that determines the interest rate you are offered. If you have excellent credit, you'll probably qualify for the best mortgage rates a lender has to offer. On the other hand, if your credit is bad, they will charge you more interest.
When you see a lender's advertisement that brags about a certain rate they're offering, it will always be followed by an asterisk. Read into the fine print below the headline, and you'll find that is says something like "for well qualified borrowers only." This means that they will only give their best mortgage rates to certain borrowers, and that they reserve the right to determine what "well qualified" means.
Whether choose a fixed-rate mortgage or an adjustable-rate (ARM) loan also plays a role. With an ARM loan, the initial interest rate will normally be set below the rate on a traditional fixed-rate mortgage. But "initial" is the key word there, because the ARM loan will eventually reset or adjust to a different rate -- hence the term adjustable-rate mortgage.
As far as mortgage rates go, there are certain things you can control and certain things you can't. Obviously, you have no control over the wheeling and dealing that takes place on Wall Street, or the "going rate" for certain mortgage-backed securities. But you do have control over your own financial practices, and this is where you can partially determine the mortgage rates that lenders offer you. This is where your credit score comes into the picture. Here are some tips for getting a better credit score before applying for a home loan.
This article answers one of the most frequently asked questions among first-time buyers. How are home mortgage rates determined by lender? I hope this clears things up for you, and I wish you all the best in your mortgage shopping.
About the Author: Brandon Cornett is the creator of the Home Buying Institute and several other consumer-education websites, including The Agent Network.
When you apply for a home mortgage loan, the lender will review many aspects of your financial history, and they will offer you an interest rate based on these and other factors. And this brings up one of the most common questions first-time home buyers have: How are home mortgage rates determined anyway?
I won't get too far into the weeds on this one, because there are some confusing things that take place on the "back end" of interest rates. Instead, I'll explain on the basic factors that mortgage lenders use to determine the rates they offer.
Interest rates are driven by the stock market and other financial activities. Many lenders will package up the home mortgage loans they sell, and then sell them as mortgage-backed securities through the stock market. So the interest rate that financial institutions charge each other will also influence the mortgage rate offered to you.
Your credit score is another big factor that determines the interest rate you are offered. If you have excellent credit, you'll probably qualify for the best mortgage rates a lender has to offer. On the other hand, if your credit is bad, they will charge you more interest.
When you see a lender's advertisement that brags about a certain rate they're offering, it will always be followed by an asterisk. Read into the fine print below the headline, and you'll find that is says something like "for well qualified borrowers only." This means that they will only give their best mortgage rates to certain borrowers, and that they reserve the right to determine what "well qualified" means.
Whether choose a fixed-rate mortgage or an adjustable-rate (ARM) loan also plays a role. With an ARM loan, the initial interest rate will normally be set below the rate on a traditional fixed-rate mortgage. But "initial" is the key word there, because the ARM loan will eventually reset or adjust to a different rate -- hence the term adjustable-rate mortgage.
How You Can Determine Your Rate
As far as mortgage rates go, there are certain things you can control and certain things you can't. Obviously, you have no control over the wheeling and dealing that takes place on Wall Street, or the "going rate" for certain mortgage-backed securities. But you do have control over your own financial practices, and this is where you can partially determine the mortgage rates that lenders offer you. This is where your credit score comes into the picture. Here are some tips for getting a better credit score before applying for a home loan.
This article answers one of the most frequently asked questions among first-time buyers. How are home mortgage rates determined by lender? I hope this clears things up for you, and I wish you all the best in your mortgage shopping.
About the Author: Brandon Cornett is the creator of the Home Buying Institute and several other consumer-education websites, including The Agent Network.
Labels: mortgages
posted by Brandon at
12:11 PM
