When you take out a mortgage to buy a home, you pay a staggering amount of interest over the years. The higher your rate, of course, the more you pay. So what determines that rate? Obviously, your credit history probably plays the biggest role, but there are other factors that go into it, too.
After saving up for a long time, I recently bought a home, which caught some of my friends off…
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As the Consumer Financial Protection Bureau (CFPB) points out, “even saving a fraction of a percent on your interest rate can save you thousands of dollars over the life of your mortgage loan.” It’s important to shop around and compare rates from different lenders, but you also want to know how those lenders think. Beyond your credit history, the CFPB says lenders also look at the following to determine your rate:
Home location: Many lenders offer slightly different interest rates depending on what state you live in. To get the most accurate rates using our Explore Interest Rates tool, you’ll need to put in your state, and depending on your loan amount and loan type, your county as well.
Down payment: In general, a larger down payment means a lower interest rate, because lenders see a lower level of risk when you have more stake in the property. So if you can comfortably put 20 percent or more down, do it—you’ll usually get a lower interest rate.
Loan term : The term, or duration, of your 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. A lot depends on the specifics—exactly how much lower the amount you’ll pay in interest and how much higher the monthly payments could be depends on the length of the loans you’re looking at as well as the interest rate.
Of course, these aren’t the only factors. The type of loan and type of interest rate (variable versus fixed) also matter, but these are the factors you may not expect. The CFPB also has an “Explore Interest Rates” tool you can check out here to see what your rate would look like, depending on these different variables. Check out their recent post for more detail on each factor.
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A booking expense or course of action charge is charged while applying for a fixed or a covered rate advance. Booking expenses are regularly non-refundable assuming that charged forthright, however once in a while the booking charge is added to your last mortgage installment.
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