What Affects the Mortgage Rate You Can Get?

Are you planning to buy a house? If so, you’ll need to get a mortgage that has a rate within your budget and financial capabilities. Before you get a loan from a lender, you’ll need to know the factors that affect interest.

Experts from mortgage companies in South Jordan such as City Creek Mortgage cite the following reasons that mortgage rates may change.

Loan Term

This is how long you have to pay the mortgage back. Most short-term loans have lower costs and interest rates, but require higher payments on a monthly basis. When choosing which option to consider, think of your current finances and your ability to pay on time.

If you need to stretch your budget, you can opt for a longer term. However, if you want to repay faster and have the money to do it, a shorter term loan is ideal.

The Amount of Down Payment

Many experts agree that the bigger down payment you make, the lower the interest rate lenders will offer. The rationale behind this is that banks and other lenders see a low risk with a potential debtor who has a bigger stake in the house they want to purchase.

The gold standard for initial payments is around 20% if you can go higher, even better. Doing so reduces your overall costs, which means you can save more over time.

Conditions of the Housing Market

The market plays an important role in the upswing or downswing of mortgage rates. When fewer houses are up for resale, sale or construction, expect a drop in demand for a mortgage. This leads to a reduction in overall interest rates.

Credit Score

A potential lender wants to know the amount of risk they’ll get if they decide to provide a debtor with a mortgage. The higher a credit score is, the less of a risk of default. The bank will know how a person handles their finances based on their rating.

If they think you’re responsible and can pay on time, they’ll give you a better mortgage rate.

These factors affect the rate you will get when you apply for a mortgage. Knowing these allow you to prepare your finances for purchasing a house.