What Is The Decisive Factor For Mortgage Rates?
If you re thinking about buying a home, one of the first considerations you may have
is what kind of interest rate you are going to get on your loan.
Knowing how interest rates are determined can help you in getting the best rate on your home loan.
The most critical determinant of the interest rate you will be quoted by the lending institutions is your credit score. This is an issue that is in the headlines all the time, and everyone who is looking to purchase a home is concerned about their ""FICO"" numbers.
If you have been curious about what a FICO score is, it is a number that credit companies assign to a person's credit status. Banks subscribe to these agencies to receive this information. They are primarily determined by income level, job history, and history of credit payments.
An important consideration also is the size of the deposit on the home.
The more you put down, the better the mortgage rate, since the bank's risk exposure is lowered as the amount of the loan in reduced.
Consequently, the higher the deposit you are able to make, the better the rate will be deposit. It is always a difficult decision about waiting and saving for a larger down payment, while wasting money on rent that could go for a mortgage. But a higher interest rate can make your mortgage payments more than your rent, so think about waiting to accumulate a good.
The maturity of the mortgage is also an important component in the determination of the interest rate of the loan. The longer a bank has to be committed to the risk of your mortgage, the more they want to be rewarded for taking that risk.
Short term rates are usually lower than long term rates because of this. But for the homeowner, it may be worth while to take the higher rate and not have to worry about increases.
Which is what leads us to the next determinant for interest rates, one which you have no control over: the market. Banks get their money from other institutions, and the rates they have tro pay will affect the rates they offer. These market rates are set according to complex economic indicators.
But despite the fact that rates can come down, most people prefer not to take a risk and would rather fix a loan rate for a longer term, then to be constantly exposed to increased rates on short term loans.
Another factor that has an influence on the rate of your mortgage is the size of your loan. Banks are limited as to the size of their loan portfolio, and if your mortgage is sizeable, they will be adding a lot of risk to their portfolio and have to expect a higher return for that higher risk.
by: Delores J. Sales
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