If you’re planning on buying a home in the next few months or years, you might be overwhelmed by the number of different interest rates that seem to be constantly fluctuating. What you might not know is that your mortgage rate is mostly determined by personal factors and your history. These factors include:
Type of Property.
Your interest rate is determined by what type of property you are purchasing. For example, if you are purchasing a second home or investment property, you will pay a higher interest rate than if you were purchasing a first home.
If your loan is higher than $417,000, you are technically taking out a jumbo loan. If this is the case, you will pay a higher interest rate because your loan will be more risky to insure.
Your credit score is the biggest indicator of what your rate will be. If you have a high credit score, you will most likely have a very low interest rate. If you have a low credit score, your interest rate will be very high. Essentially, your credit score tells lenders how well you can handle debt and paying off loans on time.
If you choose a shorter loan term, your interest rates will be higher. If you choose a longer loan term, such as 30 years, you will see a decrease in your interest rate.
This ratio can be determined by dividing your mortgage’s total amount by your home’s appraised value. Therefore, if you have a small down payment or lack home equity, your interest rate will be higher.