Business

Whenever someone applies for a mortgage, the magical question is “What is my rate?” Rates determine your payment for the course of the loan, so of course this is very important.

There are many different factors that determine one’s interest rate.
Interest rates, much like the stock market are constantly changing, and are determined by the bond market, mortgage backed securities, the federal funding rate, and leading economic indicators like employment numbers and housing statistics.

These rates are then the basis for each individual loan. The rate that an individual borrower receives is than based on the risk that their particular loan involves. Several factors effect rates; these are:

• Credit score---the higher your score, the lower your interest rate will be. If your score is lower than a certain number (usually 720) you should expect an increase in rate.

• Loan to value of the home. The lower your loan amount is, based on the appraised value of your home, the more attractive the loan. The lender is taking more of a risk when there is less equity in the home and rates are adjusted accordingly.

• Assets held. The more money the borrower has, the stronger the loan.

• Debt to income. A very important ratio when approving loans is a borrowers “debt to income”. Someone may make a lot of money, but if they also have very high monthly debt obligations, i.e. credit cards, car payment, student loans etc… than their ratios could be very high and make the loan riskier. Some investors will adjust the rate, since they are taking more risk.

• Pulling cash out for a refinance. Anytime a borrower takes cash at closing when refinancing his/her home, this will affect the interest rate. A standard “rate and term refinance” will not change the rate if there are no other risk factors. See above.

These are the main factors that will determine the interest rate. To get a complete analysis, contact your loan officer.