Your Mortgage Rate is Determined How? The Answer May Surprise You!

Your Mortgage Rate is Determined How-The Answer May Surprise You- 150x150Finding a good mortgage rate is very important when shopping for a mortgage loan. Lenders compete with each other to offer borrowers the best rates, but you must understand that the interest rates that lenders advertise are influenced by several factors, and you will probably end up paying a higher rate than the one you initially thought you would. Even a slight increase in interest rate translates in thousands over the life of the loan, so getting the smallest possible rate should be your main goal when looking for a mortgage.

The interest rate that you will have to pay is determined by taking into account what your credit score is, which part of the country you live in, how many mortgage points you are buying, the size of the down payment that you will be making, and, ultimately, the lender that you choose to go with. All these factors can significantly influence what your interest rate will be and make a large difference in what you will be paying over the years. In this article, we will have a look at each of these factors individually in order to better understand how your mortgage rate is determined.

Your Credit Score

Credit scores have a huge impact on mortgage interest rates. You might have a good credit score,and be comfortable with it, but you might be paying significantly more on your mortgage than a home buyer with a perfect credit score. Perfect credit scores are usually in the 740 and above range, while credit scores that are considered good are in the 700 to 740 range. With a credit score lower than 700, your interest rates will most likely be much higher than those of someone with a higher than 700 credit score. Even more, people with credit scores under 620 will not only receive high interest rates on their mortgage loans, but find it very difficult to actually get a mortgage loan.

Remember that you can check your credit report once per year for free, so keep an eye on your score before applying for a mortgage, and try to improve it as much as you can. If you are not in a hurry to become a home owner, and can postpone buying a home for 1 or 2 years, then you have plenty of time to make significant improvements to your credit score by paying off your debt and making sure that everything is paid on time.

The Part of the Country That You Live In

Depending on which region of the United States you live in, your mortgage rates might be higher or lower. There are no rules, but usually mortgage rates are higher in regions where the cost of living is higher. You should take this into account as well when deciding where you want to move. If you don’t have big reasons for moving in a certain region, then you could look at other similar areas in the country where the cost of living is lower, which means that your mortgage rate will be lower.

How Many Mortgage Points You are Buying

By buying points, you are basically pre-paying interest in order to lower your interest rate. One point normally costs 1 percent of the total loan amount and reduces your interest rate by one eighth of one percent. Buying a home is very expensive initially, so you should make sure that you can afford to buy points before deciding that they are worth it. Another thing that you must consider before buying points is how long you are planning to live in the home. Buying mortgage points is not recommended for those who plan on moving after only a few years.

How Much Money You Are Putting Down

The size of your down payment will help you save money in two ways. First, if your down payment is 20 percent or larger, you won’t have to pay for Private Mortgage Insurance (PMI), which can be quite expensive. Second, home buyers who make a smaller down payment will be seen as a bigger default risk by the lender and, most likely, asked to pay a larger interest rate. So coming up with a larger initial payment will help you save significantly over trying to save some money at closing by putting down a smaller amount.

Your Lender

Even if you have a good relationship with a mortgage lender and you are promised the best mortgage rates, shopping around and comparing offers from multiple lenders is never a bad thing. Lenders may be competing with each other, but they also participate in various lending programs and have other rules of structuring their mortgage loans and fees.

There are several factors that have an influence in determining your mortgage rate, and you might think that you are getting the lowest mortgage rate, but you should pay attention to other aspects of your mortgage loan before signing a contract. You might be offered a much lower interest rate by a lender, but, unless you pay attention, they might charge you significantly more on closing costs than other lenders. This can even lead to losing money over going with the lender that offered a slightly higher interest rate, but lower closing costs. Fortunately, with a little research and carefully comparing several mortgage offers, you will be able to find a mortgage loan that will suit your needs.

Current Mortgage Rates: 30 Year Fixed Vs. 20 Year Fixed

Current Mortgage Rates-30 Year Fixed Vs. 20 Year Fixed-150x150The time required to pay off a loan has the biggest influence on the amount of your monthly payment. The lower the loan term, the more you will save in interest compared to longer term loans, but your monthly payments will also be larger. With so many loan term options to choose from, there are a lot of factors to look at when making a decision as to what loan term is best for you, your budget, and your financial situation. Read on to see if  a 30- year or 20-year loan is the best choice for you!

The Difference in Interest Rates

At first glance, there isn’t much difference between the interest rate on a 30-year loan and a 20-year loan. Currently, the difference between the two types of loans is only around .13 percent, which may not seem like a lot, but this small percentage can mean thousands of dollars over the life of the loan.

These rates fluctuate based on several factors, but they usually follow the same pattern. The difference in interest on a longer term loan doesn’t look that significant, but the lenders will collect more revenue over time on a long term loan than they would on a short term loan.

However, the monthly mortgage payment will be larger on a 20-year fixed-rate mortgage loan than it would be on a 30-year fixed-rate loan. Whichever you choose to go with depends entirely on your budget and future plans, but you should keep in mind that you will always save money by choosing the shorter term loan. The 20-year fixed-rate mortgage is a good compromise for someone whose budget doesn’t allow him or her to make the monthly mortgage payment on a 15-year mortgage, but wants to pay off their loan in a shorter time than 30 years, while saving some money in interest.

Other Differences Between 20-Year and 30-Year Mortgages

The interest rate is not the only aspect that you should consider when choosing between a 20-year fixed-rate loan and a 30-year fixed-rate loan. Another important part of taking out a loan is how much you will be paying in points. Points are fees charged by lenders to cover costs like inspection fees and preparation fees. The points will usually be a percentage of your total loan amount and will be based on the mortgage term. With points charged on a 30-year mortgage being a little over 1 percent, you will again save money be choosing a shorter term mortgage, for which the points will be under 1 percent.

Another thing that you should take into consideration when choosing between the two types of loans is how fast equity is built with each loan. Shorter term loans, like the 20-year, allow you to build equity much faster than you would on a 30-year mortgage loan. Higher equity will make it possible for you to secure a second mortgage loan much easily.

At the end of the day, choosing between a 20-year and a 30-year mortgage loan will depend on whether you can afford the higher payments of a shorter term loan. Saving money is always a top priority for everyone, so you should choose the mortgage loan that is less expensive, but only after a careful analysis of your options and budget. The mortgage rates difference might not seem very significant when shopping for a loan, but it will make a big difference in how much money you pay over time.

Jumbo Loan Rates vs. Conventional Home Loan Interest Rates

Jumbo Loan Rates vs. Conventional Home Loan Interest Rates- 150x150Huge and expensive luxury houses usually come with equally large mortgages, so lenders are offering a type of loan that enables home buyers to have access to higher loan limits than they would with a conventional loan. This loan is called a “jumbo loan” and it is designed to help home buyers who are in the market for a very expensive and luxurious home. Depending on many factors, such as size, materials used in construction, or location, some homes have bigger prices than the majority of homes in the United States, and can’t be purchased by securing a conventional mortgage loan.

What is a Jumbo Loan?

Jumbo loans are nothing more than larger mortgage loans. The government has imposed lending limits for most home loans, making it impossible to buy a more expensive home through conventional mortgage loans.

Loan limits in most parts of the country are usually in the $400,000-$600,000 range. Anything over that limit is considered a jumbo loan. Jumbo loans can exceed $1,000,000, but they are much harder to obtain than conventional loans. Qualifying for a jumbo loan is significantly harder than qualifying for a conventional loan, especially if your credit score is less than perfect.

Jumbo Rates Compared to Conventional Rates

The sales of properties that are worth more than $750,000 have increased over last year by over 35 percent. The number of properties sold for $1,000,000 and over has also increased by over 25 percent compared to 2012. The jumbo loans market seems to be recovering nicely after the big hit that it received a few years ago, when many lenders stopped offering this type of loan.

The difference between current mortgage rates on conventional mortgage loans and jumbo loans has narrowed lately, making jumbo loans more appealing. Interest rates for a 30-year fixed-rate mortgage loan that conforms to the government limits were 3.75 percent in April, while rates for jumbo loans were only 3.85 percent.

After being raised in 2008 in order to stimulate the housing market, limits for jumbo loans were lowered in many states in 2011. If limits for conforming mortgage loans are lowered, then home buyers have to take out bigger jumbo loans to be able to buy a home with the same price.

Interest rates for jumbo loans might be as low as rates for regular mortgage loans, but the requirements are stricter. Depending on your financial situation and credit score, getting a jumbo loan this year could possibly be the best choice for you. If you can prove a large income, perfect credit score and you are able to provide a fairly large down payment, then a jumbo loan can be your opportunity to purchase the luxury home of your dreams.

Mortgage Rates Forecast Vs. Home Mortgage Rates Today

Mortgage Rates Forecast Vs. Home Mortgage Rates Today- 150x150Today’s home mortgage rates are very close to the record lows registered at the end of last year. They have been slowly increasing since then, and there are signs that they will keep increasing. With this in mind, you are probably wondering if you should buy a home now or wait longer. Increasing rates are always bad news for people who wish to become home owners, but mortgage professionals don’t think that rates will rise unexpectedly just yet.

Mortgage rates have been slowly increasing and decreasing since the start of the year, and most analysts don’t think that we will see any major changes in the near future, but they expect a slight increase this year. The recovering economy seems to be slowly growing and there is an increase in job growth, both of these giving confidence to investors and home buyers, so the rates will most likely start going up.

Home Mortgage Rates Today

With current mortgage rates near all-time lows, an increase in home sales and refinances has been recorded this year. The economy, which has the largest influence over mortgage rates, is experiencing more and more growth and, unless a new crisis arises, it will keep growing in the following years. So 2013 might be the last year when mortgage rates will be close to record lows, meaning that acting now might save you money.

Securing a low interest rate on your mortgage means that you will pay less overall for your loan. The current rate for a 30-year fixed-rate mortgage loan is 3.6 percent, while the rate for a 15-year fixed-rate loan is 2.80. Not the lowest they have ever been, but pretty close, and they might not stay in this range in the near future. Rates have been steadily increasing since last November, but are still considered low, so today’s low mortgage rates might be the perfect opportunity for you to become a home owner.

Mortgage Rates Forecast

Like most home buyers, you are probably looking towards the future, and not the past. Low mortgage rates might be a thing of the past, but, according to specialists, they won’t increase significantly and surprisingly in the next months.

The Federal Reserve’s recent actions have kept mortgage rates at a low level. The government has been purchasing mortgages from the lenders, allowing them to lend more money to borrowers, while keeping mortgage rates low. But the government’s help won’t last indefinitely, and the mortgage rates will start to increase more significantly.

The mortgage rates are expected to go above 4 percent by the end of this year, and probably over 4.5 percent by the end of 2014. While this might not seem like a lot, especially for a first time home buyer, the difference will add up over time, and the 1 percent difference in current and future rates will actually mean that you will be paying thousands more on your mortgage loan.

As long as no major events happen in the United States or internationally, like a new war or a major event in the financial world, the mortgage rates will most likely continue their upward trend, at least for the near future. As the economy continues its growth, the mortgage rates will be affected by it, but it looks like it will only be a slow, but steady, increase for the next couple of years.

If you are planning on buying a home, this might be the perfect time to start looking. Not only are the mortgage rates expected to grow, but other costs associated with mortgage loans will experience an increase in the near future. Mortgage rates might still seem fairly low at the expected 4 percent by the end of 2013, but every small increase means more money out of your own pocket, and a more expensive and harder to repay mortgage loan. So, if you think you have done all the research and have a full understanding of what buying a home entails, purchasing a home at today’s mortgage rates is probably a better idea than waiting a few more months or years.

Finding a Mortgage Broker

Mortgage-BrokerGetting the best mortgage for your particular situation can be overwhelming, but if you find a mortgage broker or banker whom you trust they can help you with every decision. The key is trusting them. Someone that has been referred by a friend or family member would of course be the best of circumstances.

Some people may not have the luxury of knowing someone in the business or having a friend that has been through the home loan process. In that case, you can contact your local board of realtors or the National Association of Mortgage Brokers for a list mortgage brokers or bankers in your area. Definitely do your research on them and check references.

You want to find out first if they are licensed. This is extremely important. Find out how many lending institutions they do business with and how good their relationship is with that institution. This will allow you to have several choices in programs and rates that will suit you and your situation.

Find out what their fees are and how they are compensated for your loan. Ask the broker about the different loan programs they have access to and how they will work for you. Ask them why you should work with them over anyone else. They are well aware you have many options in this department.

mortgage brokerSome brokers may recommend specific programs because they get paid more on them. Make sure you either trust the broker or you have done your own research and homework on the specific programs. If you have bad credit most likely your mortgage rate is going to be higher than normal, but make sure your broker does not hide fees by raising your interest rate on you. This occurs more frequently with people whom do not have good credit.

Finally, be cautious of anyone that tells you exactly what you want to hear. Always remember, it is their job to sell you a program and they make money when they do. A good broker won’t force a particular program on you.

Compare Mortgage Rates to Find the Best Deal

content_guides_buying_mortgage_adviceObviously, the most important part of finding a mortgage is determining the best mortgage rate. This involves two main things, each of which will be outlined in today’s article. By understanding the importance of each of these things, borrowers will effectively be able to compare mortgage rates and, in so doing, get the best possible loan.

Compare mortgage rates from the past to the present
One of the most important parts of picking a good mortgage rate is understanding how the current rate compares to past rates. If the rate has dipped by several percentage points over the last few years, could it fall any further? Or is it already on an upswing? If you can accurately answer these questions, you can ensure that the rate you eventually choose will be at the lowest possible percentage.

Obviously, analyzing the future trajectory of mortgage rates is difficult if you have no economic background. In fact, even those who do have extensive training in the subject are not always right. For that reason, it’s important to get a wide range of opinions from a number of different sources in order to get a general consensus of how to compare mortgage rates from the past to the present.

If you were to compare mortgage rates today with those in the past, you would find that many term-lengths are at an all-time low, meaning that there has never been a better time to buy for many lenders. Of course, mortgage rates are in a constant state of flux, and they could still become lower as the economy continues to sink. By monitoring information and analysis like this, you should be able to time the market much more effectively.

Compare mortgage rates from different banks
The other major factors that you need to look at are the rates that different banks are offering. Each bank has its own unique pros and cons, and by comparing their different interest rates, you can get a better idea of which lender offers the best solution to your home financing needs. One of the most straightforward ways of doing this is to go around to each bank’s website and look at their individual mortgage rates for the various terms.

However, there is an easier way. Certain websites have made it their duty to keep consumers updated on the best possible interest rates. To do this, they compare mortgage interest rates from a number of popular banks, and allow you to view a side-by-side comparison to determine which lender offers the best rates for the term you are interested in.

Usually, the mortgage rates for these banks are very similar. However, the difference of a few bank ratestenths of a percentage point can add up over time, and could eventually force you into paying thousands of dollars in unnecessary interest money. This is why comparing mortgage rates are so important: by getting a better idea of the options available, borrowers can pick and choose the one that gives them the best rate. In turn, these forces lenders to offer more competitive rates, as consumers can easily go to the bank that offers the most competitive rate.

Summary
If you can understand and utilize both of the objectives listed above, then you will be much better equipped to find the perfect mortgage rate. Put simply, in order to compare mortgage rates effectively, you need a combination of education and professional opinion about the past, current, and future trends of interest rates from all sorts of different banks.