If your clients are like most people, they want to get the lowest interest rate that they can find for their mortgage loan. But how is their interest rate determined? That can be difficult to figure out for even the savviest of mortgage shoppers. Knowing what factors determine their mortgage interest rate can help them better prepare for the home-buying process.
- Down Payment- Typically, a larger down payment means a lower interest rate. Lenders see a lower level of risk when you have more stake in the property. Most mortgage programs give the best pricing with 40% down. Slight adjustments will begin as the down payment percentage decreases.
- Credit Scores- In general, consumers with higher credit scores receive lower interest rates than consumers with lower credit scores. Most loans products give the best results when credit is above 740.
- Home Price and Loan Amount- The comparison between a loan amount and home price is called Loan To Value (LTV). But the actual size of a loan impacts the interest rate. Typically loans below $100k have negative pricing adjustments, and depending on the market, large/jumbo loans may have negative pricing adjustments as well.
- Loan Term- The term, or duration, of a loan is how long you have to repay the loan. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments. Most traditional loans today have no pre-payment penalty, therefore allowing you to pay off any loan as last as you’d like.
- Loan Type- There are several loan types, such as Conventional, FHA, VA, USDA, Jumbo Non-Conforming. Rates can be significantly different depending on the type of loan. In general, government loans (FHA, VA, and USDA) will have lower rates than non-government products.
- Interest Rate Type- Interest rates come in two basic types: fixed and adjustable. Fixed interest rates don’t change over time. Adjustable rates may have an initial fixed period, after which they go up or down each period based on the market. The initial interest rate may be lower with an adjustable-rate loan than with a fixed rate loan, but that rate might increase significantly later on.
I Hope This Helps You Understand A Little Bit More About Interest Rates, And Why It Is So Important To Get You Clients Pre-Approved Early Enough To Strengthen Any Weaknesses.
Blog contributed by Forrest Lansky with Cason Loans
