What Factors Affect Mortgage Interest Rates?

Lenders take various factors into account when determining interest rates for home loans. By becoming familiar with different types of mortgages, their interest rates and factors determining these interest rates, prospective mortgages Hanover home buyers can prepare in advance to qualify for the best home loan deal. Here are some of the main factors that affect interest rates when obtaining a home loan. 

 

A Buyer’s Credit Score
Credit scores are calculated from individual credit reports containing information on loans, credit card spending and payments. They depict how a person fares in paying off his or her debts. Lenders evaluate credit rating to get a better picture of a person’s financial habits. A high credit score indicates people are responsible in handling their finances and paying off debts. A low credit rating shows a lack in people upholding their financial obligations.

People with high credit scores are more likely to obtain a low interest rate mortgage. Before searching for a new home, buyers should check out their credit rating and ensure they have good financial standing in order to qualify for low interest loans. 

 

Down Payment and Loan Amount

Most lenders expect buyers to place a down payment on a home in order to reduce the amount of their loan. Buyers who put down a high down payment often benefit from lower mortgage rates as lenders consider them less of a risk in paying back their loan. It is to a buyer’s advantage to put down at least 20% (or more, if possible) of the home’s selling price as down payment as it qualifies them for lower interest rates that can reduce monthly payments. 

 

Interest Rate Type

Home buyers have their choice of two types of interest rates: fixed interest rates and adjustable rates. Fixed rates remain the same for the duration of the loan. Adjustable interest rates are stationary for a time and then fluctuate up or down in accordance with market changes. Buyers should evaluate their options carefully to see which interest rate is the most favorable to their situation.

Loan Type and Terms
Interest rates also vary depending on the type and terms of a loan. Some lenders offer lower rates for certain types of loans, particularly if the loans are for a short time period rather than a long one. Home buyers should discuss all their options in advance with their lender as well as assess their own financial information to determine which type of loan is most suitable.