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.

Building a Home: Should You Lock-In Your Mortgage Rate?

Building a Home-Should You Lock-In Your Mortgage Rate- 150x150New homes sales have rose significantly in the past few months, but it looks like the numbers are based on signed contracts instead of closings. This means that some of these homes that are recorded as sold may have not even been built yet, and may never be. Contracts were signed with interest rates at record lows, buyers were unable to lock in the interest rates, and are now watching interest rates increase. This will probably result in a significant number of cancellations.

Why Lock-In Your Mortgage Rate

When locking-in interest rates, most home buyers try to find the best time to do it so they get the best deal. While interest rates cannot be accurately predicted, there are trends that you can keep your eye on in order to better approximate which way the rates are going.

If you decide against locking in your interest rate, and would like to wait, there is a chance that the rate might go down, but there’s also a chance that it might go up. Interest rates don’t normally increase significantly over a short period of time, but a lot can happen until closing, and you could end up with a much higher rate on your mortgage loan. Also, depending on your financial situation, even that really small increase in interest can make it much harder to keep up with mortgage payments over time.

Locking-in your mortgage interest rate will guarantee that the interest rate you and your lender agreed upon will be applied to your mortgage loan, regardless of the changes in mortgage rates that will happen until closing. What many borrowers don’t realize is that they are not tied to that particular lender if they lock-in their interest rate. If rates decrease before closing, the borrower can go to a different lender. The threat of losing a customer might even determine your current lender to renegotiate a lower interest rate.

If you are satisfied with the current mortgage rates today, you should lock it in. This will protect you against any future interest rate increases and give you more peace of mind than if you would choose to risk and not lock-in your mortgage rate.

Locking in the Mortgage Rate When Building a Home

On regular mortgage loans, the interest rate can be locked right after the application is approved. The closing will usually be one or two months later, so there won’t be any major changes in interest rates, unless something extreme happens with the United States or global economy.

Locking-in an interest rate on a home that is not built yet or currently being built is much harder because the lender will not know precisely when construction will end. Borrowers apply for a mortgage, but are only able to lock in their mortgage several months later. Interest rates can fluctuate significantly in several months, putting borrowers at a great risk of paying significantly more on their mortgages. In order to lock-in interest rates, you will most likely have to pay points on the mortgage, which can add up to thousands of dollars.

The conclusion is that you should lock-in your mortgage rate when building a home if you are satisfied with the interest rate that is offered to you. You might not be able to lock-in the rate unless you pay mortgage points, so you have to decide if you want to spend that money to lock-in the rate or invest it somewhere else. Locking-in the mortgage rate when building a home will give you peace of mind, but you should always look at all the factors before deciding whether you should do it or not.

Even with Fixed-Rate Mortgages So Low, Don’t Overlook Adjustable Rates!

Even with Fixed-Rate Mortgages So Low, Don't Overlook Adjustable Rates- 150x150Refinancing has become very popular ever since interest rates started to fall a few years ago. Home owners who found that refinancing is the way to go in order to reduce their mortgages may even refinance multiple times in the past few years. However, most borrowers choose to refinance into a fixed-rate mortgage, not realizing that adjustable-rate mortgages also have their advantages and may even be more beneficial for them.

Adjustable-rate mortgages have gotten a bad reputation over the past few years, being blamed in part for the large number of foreclosures. This made fixed-rate mortgages more popular than ever and the go-to mortgage for most people who refinanced. Interest rates on fixed-rate mortgages are, indeed, near record lows, but home owners who are considering refinancing should take a look at adjustable-rate mortgages as well.

What Are Adjustable-Rate Mortgages and How Do They Work?

Adjustable-rate mortgage loans start out, like fixed-rate mortgages, with a fixed interest rate period, which usually lasts for one to seven years. During this fixed-rate period, adjustable-rate mortgages are essentially fixed-rate loans. After this period ends, the interest rate is adjusted according to the mortgage loan terms.

Interest rates on an adjustable-rate mortgage are lower during the fixed-rate period than home mortgage rates on a fixed rate mortgage loan, making them ideal for home buyers who don’t wish to live in their home for a long period of time. Compared to fixed-rates mortgages, an ARM can save you several thousands of dollars during the fixed-rate period.

The Advantage of Refinancing Into an Adjustable-Rate Mortgage

The largest advantage of refinancing into an adjustable-rate mortgage is that you can take advantage of some of the lowest interest rates available in the fixed-rate period. The interest rate for that initial period will be lower than the interest rate on a fixed-rate mortgage.

Adjustable-rate mortgages are especially valuable for home buyers who plan on refinancing or moving after only a few years before the fixed-rate period comes to an end. They are also a good choice for those who expect the economy to make a good recovery and their financial situation to improve.

The Risk of Refinancing Into an Adjustable-Rate Mortgage

The biggest risk of refinancing into an adjustable-rate mortgage is that the interest rates on your loan might increase dramatically once the initial period is over. Interest rates are still very low right now, and it looks like there is no place that they can go but up. But a lot can happen during the fixed-rate period, so you might end up with an even lower interest rate once the adjustable-rate period starts. Alternatively, you can refinance or pay off your loan before the adjustable-rate period begins, and you won’t have to worry about a large increase in interest rates.

Besides refinancing or paying off your mortgage loan before the fixed-rate period ends, you can also plan for an increase in interest rates. By choosing an adjustable-rate mortgage over a fixed-rate mortgage, you will have a lower interest rate for the first repayment period, meaning that you could save or invest the difference. Having savings once that adjustable-rate period begins will help you significantly if the interest rates increase, giving you time to refinance.

Adjustable-rate mortgages should not be overlooked when refinancing. Depending on several factors, they can be quite beneficial and save you money. It is up to each home buyer to take a close look at his or her financial situation and future plans and decide which type of mortgage to refinance into. Just because adjustable-rate mortgages are seen as riskier than fixed-rate mortgages doesn’t mean that you will be unable to make them work to your advantage.

Current FHA Mortgage Rates vs. Current VA Mortgage Rates

Current FHA Mortgage Rates vs. Current VA Mortgage Rates- 150x150Both Federal Housing Administration (FHA) and Veteran Affairs mortgage loans are backed by the government and both are good alternatives to conventional loans for people with lower incomes. While the rules of handing out these types of loans are written by the government, it is still up to the individual lender to decide if you qualify, based on their own set of rules, which are usually stricter than the government’s guidelines.

Similarities and Differences Between FHA and VA Mortgages

Both types of mortgage loans were developed by the United States government in order to aid people who don’t possess the means to secure a conventional mortgage loan. Buying a home if you have low income is extremely difficult so, through these two types of loans, the government gives more people the chance of becoming home owners. People who would normally be refused a conventional loan by banks and credit unions can qualify for an FHA or VA loan with a much lower credit score. The government doesn’t hand out the loan, but insures it against a default, giving people who are regarded as a high default risk the possibility of buying a home.

The biggest difference between them is that, in order to qualify for a VA loan, you have to be an active-duty military member, a veteran, or a surviving spouse. So a person who is serving or has served in the military can qualify for both types of loans, but someone who hasn’t served can only qualify for a FHA loan if he or she meets the other requirements.

Other differences between the FHA and VA mortgages have to do with the applicant’s income, the down payment, and mortgage insurance. FHA loans have more restrictions when it comes to someone’s income than VA loans do. The money that you will have to put down as a down payment is also a big difference between FHA and VA mortgage loans. While FHA loans require a minimum 3.5 percent down payment, VA mortgage loans do not have a down payment requirement. Lastly, you will be required to pay mortgage insurance for at least 5 years, if you choose an FHA loan, while VA loans don’t have this requirement.

Current FHA Mortgage Rates

Most lenders offer 3.5 percent interest rates on 30-year fixed rate-mortgage loans, which means that FHA mortgage rates remain near historic lows. Also, most economists predict that FHA rates will remain under 4 percent for 2013. Interest rates for 15-year fixed-rate mortgage loans also remain low, in the neighborhood of 2.70 percent.

FHA mortgage rates were around 3.90 percent last year at this time, hitting a historic low at the beginning of 2013, and they remained in that range since then. Freddie Mac‘s economists say that they expect FHA mortgage rates to reach 3.75 percent by the end of the year.

Current VA Mortgage Rates

VA mortgage loans are backed by the government through the Department of Veterans Affairs, but they are not the ones who set the interest rates. VA mortgage interest rates are set by each lender who is approved by the VA. There are many factors that have an influence on what your VA mortgage rate will be, so working with a VA specialist is recommended.

Current VA mortgage rates hover around 3.25 percent for a 30-year fixed-rate VA mortgage loan and around 3 percent for a 15-year fixed-rate VA mortgage. The short-term prediction is that VA mortgage interest rates will decrease by a small percent, but they are at near record lows right now, so it is up to you if you want to risk it and wait longer.

Familiarizing yourself with the current FHA and VA mortgage rates can help you spot a good deal when the time comes. Choosing between an FHA and a VA mortgage loan depends mostly on your individual situation and your future plans. The current mortgage rates are fairly close for both loans, but you need to take into account all of the characteristics of each loan and decide to go with the one that best fits your needs.

Mortgage Rates in 2013: Will They Go Up, Down, or Hold Steady?

Mortgage Rates in 2013-Will They Go Up, Down, or Hold Steady-150x150The home-buying season has arrived and the 2013 real estate market seems to be moving a little faster, while mortgage rates are still lower than ever. You might be wondering if mortgage rates are going to hold steady, increase, or decrease, considering the fact that they have gone up since the historic lows recorded last year.

While the economic growth seemed to slow down considerably at the end of 2012, it looks like it came back on the right track at the beginning of this year. In an economy that is fueled by consumer spending, people keeping their job is of the utmost importance, so the recent layoffs decrease has helped significantly as well. The real estate market has contributed to the economic recovery also. Existing home sales have gone up as well as new home construction, but the inventories are fairly low because the construction industry is also in recovery.

What Influences Mortgage Rates?

Back in November of 2012, mortgage rates were 3.31% for a 30-year fixed-rate mortgage and have increased to 3.51% by February 2013. Even with the slight increase, mortgage rates are still close to record lows, and actually lower than they were at this time last year.

One of the main factors that influence mortgage rates is the housing market recovery, which has suffered significantly due to the economic crisis of 2008. Home sales are rising, but the inventories are getting lower, which will drive home prices up. Builders are also slowly recovering, so more and more new homes will become available.  All of these contribute to the appreciation of the housing market.

The United States economy, which is seeing slow recovery, has the most influence on the housing market. After the recent recession, economists expected a 3 to 5 percent growth in Gross Domestic Product (GDP), but the United States is only experiencing a 2 percent growth. The recovery is slow but steady and will lead to a stronger housing market.

Will Mortgage Rates Go Up or Down in 2013?

Excluding another major crisis, a new war, or the further deterioration of the European economy, it is safe to say that the mortgage rates will slowly rise in 2013. The economic increase will lead to an increase in corporate profits, which will positively influence confidence among consumers and potential home buyers. As a result, the demand for stocks will increase, the demand for bonds will decrease, and mortgage rates will go up.

The mortgage rates will most likely remain under 4 percent for 2013, but gain up to 0.5 percent by the end of the year. If the economy continues to grow, you should expect higher mortgage rates in the future, but if there is a new financial or political crisis, the rates will go down to what they were in 2012, and possibly even lower.

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.

How to Find the Best Refinance Mortgage Rates

Best Refinance Mortgage RatesWith mortgage interest rates at near all-time lows, now could be the perfect time for you to consider refinancing your mortgage. Unfortunately, even if most factors point towards an increase in mortgage refinancing, low appraisals and strict lending rules make it difficult for borrowers to refinance, even with good credit scores and significant assets.

Low interest rates have always been attractive to borrowers. The average interest rate on a 30-year mortgage is under 4 percent right now, at the lowest level in the past 60 years. Before refinancing, you must be aware that a low rate is not the only factor that will decide if you will save money. Low mortgage rates usually come with bigger closing costs, and adjustable-rate mortgages come with a low initial rate that can increase a lot over time.

Tips on Getting the Best Rates

While predicting mortgage refinance rates is difficult, you can take a few steps to make sure that you’re receiving the lowest refinance rates available:

  • Boost your credit score. The first thing that you need to do before refinancing is to try to increase your credit score. You’re entitled to one free credit score report per year. Always make sure that all the information in the report is accurate, and correct it if it’s not, by contacting the issuing agency. A credit score of 740 and above is generally perfect for getting the best refinance rates.
  • Shop for the best mortgage lenders. It’s more convenient to just refinance with your bank, but only by shopping around you will be able to find the best refinance mortgage rates. The difference between the best and the worst rate can be as high as 1 percent. When looking for quotes, try bankers, mortgage brokers, credit unions, local and national lenders, and make sure you keep an eye on mortgage rates comparison websites.
  • Look at fees, not just rates. Low rates usually mean high fees. Question all of the lender’s fees and look out for any unnecessary administrative, processing or courier fees. You’ll only know the true cost of your mortgage after you take everything, from photocopying costs to legal fees, into consideration.
  • Having a good relationship with a lender. This can make a difference regarding the interest rates that are offered to you. A great payment record and a high credit score could guarantee you the best interest rate that the lender can offer. On the other hand, borrowers with spotty payment records will be offered less than advantageous interest rates.

Tips on Getting the Best RatesEven if interest rates are very low right now, getting the lowest rate possible depends on many elements. Before refinancing, you should take into consideration factors like how likely it is for you to move in the near future, your financial situation, and your financial history. In order to receive the best refinance mortgage rates, you need to understand the process and have everything in order financially.

Major Motivations to Refinance a Mortgage

home-mortgage-interest-rate-decrease 150x150Refinancing – Why You Should Consider It

Most perceptive homeowners know a good idea when they hear about it, especially when it involves getting the most out of their hard-pressed budget. Since the monthly payment obligations on their home take the biggest bite out of the cash flow, they will naturally opt to explore any way at all to cut those costs, and save whatever they can over the long-haul in the process. For a multitude of economic reasons, refinancing that loan is the perfect solution, and it goes well beyond just easing up on the monthly mortgage bill. The refinance option can cover quite a few strategic motivations, and each one can make a huge impact on immediate or long-term cash concerns. Here a few of the most important factors that can influence the decision.

Mortgage Interest Rate Reduction

The amount of cash a homeowner needs to pay out every month toward the house payment can be significantly reduced with a lower interest rate. Just $100 saved each and every month over a decade will allow a homeowner to put over $12,000 back into the budget. If the original loan was approved with a higher interest rate applied compared to today’s rates, the savings could be quite large. For instance, the difference on a $250,000 refinance loan at 5% over 30 years versus 4% would be roughly $148 less paid out each month. This is approximately $53,000 in interest savings over the term of the loan. In addition, a lower interest rate also builds equity far quicker.

Monthly Mortgage Payment Reduction

If a homeowner were to consider refinancing their existing loan to a new 30-year commitment, it would substantially reduce the monthly repayment amounts. There are even lending options that offer a 40-year refinancing schedule. There is a negative to this approach however. By extending the term of the refinanced loan out beyond the current loan term, there will be much more interest paid out over the long-haul as a result. This tactic would therefore be the exchange in benefit for a reduced monthly payment amount. As an example, using a $200,000 loan at 4% interest over a 20-year term versus a 30-year term would result in an additional $53,000 paid out in extra interest, but a $257 reduction in the monthly payment.

Accelerate the Mortgage Loan Payoff

The overall loan debt can be greatly reduced by cutting down on the length of the term of the loan. Generally, the shorter the term of the mortgage, the lower the mortgage interest rates, and since the termination date of the loan is far sooner, there is far less interest to pay. In this scenario, the monthly payments are usually higher. By taking a $200,000 30-year loan at 6% versus a 15-year at 5.5% would yield a $1,199 payment versus a $1,634 payment. However, the 15-year loan would reap a significant savings of over $137,520 due to its loan term being only half as long.

Alternate Mortgage Loan Types – Fixed versus ARM

If the homeowner wishes to stabilize the monthly payments, and currently has a mortgage with an adjustable rate (ARM), or one with an interest-only schedule for a certain length of time, then the fixed-rate mortgage option would be the best choice. This is very beneficial when the current rates are at their lowest. Conversely, with interest rates being as low as they are, simply opting for a new ARM might yield better rates and lower payment limits.

Cashing Out Your Mortgage Equity

Refinancing to gain access to the equity in the home can be very beneficial for a variety of reasons, such as home improvements, debt consolidation purposes, pay tuition expenses for a family member, or perhaps to start a small business or other investment opportunities. If the homeowner qualifies for refinancing, and the approval amount exceeds the value of the home, the borrower can pocket the difference. Most lenders will consider refinancing approval when there is a minimum of 20% equity in the home value.

So if the refinancing plan is to gain access to the equity, lower the monthly payments, pay off the mortgage sooner, or pay off some of the higher credit card obligations, use the online mortgage calculators and other internet resources to find the most affordable offers that meet the desired goals, and makes that budget much more manageable.

Take Advantage of Today’s Historically Low Rates

mortgage-ratesToday’s mortgage rates continue to hover at all time record lows and this along with government incentives has made a refinance mortgage more financially attractive than any other time in history. Currently the interest rate on a 30 yr fixed mortgage is 4.28%. Generally, anywhere around the 4% interest mark is a great deal. Not every one should be refinancing for this reason alone however there are several factors that make refinancing at today’s mortgage rates a prudent financial decision for many homeowners.

How do you know if now’s the time to pull the trigger on a refinance mortgage? Start by finding out what your current loan balance is, relative to the value of your home. If it’s 80 percent or less, you have lots of options. If it’s between 80 percent and 105 percent, you’ll have to see if you qualify for a Home Affordable Refinance Program which was recently passed by our government in an attempt to help people better manage their loans. If it’s more than 105 percent, you’d have to pay down your mortgage balance with cash to refinance. That may not be a bad idea, depending on your financial situation-but talk with a mortgage loan adviser before proceeding.

is refinance mortgage a wise financial decisionThe next thing to determine is how long you plan on staying in your existing home. Because refinance mortgages come with closing costs, you don’t start saving money on that lower payment until you’ve repaid the upfront costs of the loan. Also, when estimating closing costs, remember to account for any prepayment penalties on your existing mortgage. A mortgage loan officer will analyze your current mortgage and give you a cost benefit analysis so you are able to fully evaluate whether a refinance mortgage is a wise financial decision.

If you want to take advantage of the lowest mortgage rates in history and refinance your mortgage then it would behoove you to get several quotes from various lenders so you are able to compare lenders and go with the one you feel most comfortable with. The most efficient way to receive multiple quotes is to fill out an online application through a website that is affiliated with several top lenders. This requires filling out only one application and you are then matched with 3-4 lenders who are licensed in your area. The mortgage professionals will then help you further explore whether or not refinancing at today’s mortgage rates is a wise financial decision for your situation.