August 14, 2020

Top 5 Factors that Affect your Mortgage Interest Rate

Did you know there are 30 different factors that go into determining an interest rate?

A lot of people think that the same rate applies to any and everyone, but it doesn’t. There are 30 different factors, but today, we’ll just focus on the five most common.

  1. Credit score: This is maybe the most well-known. The better the credit score, the better the interest rate.
  2. Loan-to-value, or LTV: The more equity there is in a property, the less risk there is to the investor who will fund your loan. As a result, more equity means better pricing on an interest rate.
  3. Occupancy: This simply means whether or not you’re occupying the home as your primary residence, i.e., having a second home as a rental property. A rental property is higher risk, so there’s a bit higher of an interest rate associated with this scenario.
  4. Loan purpose: Buying a home, believe it or not, is a little less risky than refinancing (especially if the refinance involves pulling cash out). Again, less risk means you may have better pricing.
  5. Loan type: There are many different types of loan programs. Some, you may have heard of— “FHA”, “VA”, “USDA”, “conventional”—others, maybe not. These can all have different interest rates depending on the investor and the type of program.
  6. Bonus: Combined-loan-to-value, or CLTV: This doesn’t come up very often, but if there’s a second mortgage in place that’s being kept, or the loan is paying off the second mortgage, or even if you’re buying a home with a first and second combination, the associated CLTV can change the risk factors and therefore influence your rate as well.

Next time you’re thinking about rates, just remember: There is a lot that goes into determining an interest rate, and it isn’t always just one thing. Want to take a look at the full list? Click here!

Have any questions? Let’s talk!

Watch our video on this topic here.