What Factors Determine the Best Mortgage Interest Rates for you?

by Rate Shop Rate Shop

Mortgage interest rates are among the most important things that you need to consider when buying a home. Most home buyers want to get the lowest mortgage rates with the aim of saving money. But they forget that the lowest mortgage rates are not always the best ones for them. There are many other factors that determine the best mortgage rates for a homebuyer that will also save you a lot of money in the long run.

Let’s take a glance at the factors that determine the best mortgage interest rates for homebuyers.

Loan Type
There are numerous types of loans including conventional, USDA, FHA, and VA loans. It depends on the lender which loan type he offers because different types of loans have different eligibility criteria. The mortgage rates can differ on the basis of the loan type you are getting. Contacting different lenders will help you in getting a better understanding of all the options available for you.

Interest Rate Type
Interest rates are generally of two types, namely variable and fixed. The fixed interest rates don’t change over time but fixed mortgage rates have an initial fixed period after which they change according to the market. With a variable mortgage rate, the initial interest rate may be lower but as the market changes, the rates may increase significantly.

Loan Term
The loan term is the time you have to repay your loan. Generally, shorter loan terms lower interest rates and lower overall costs but higher monthly payments indeed. The interest rates and monthly payments depend on your loan term.

Down Payment
In most of the cases, with a larger down payment, you get a lower interest rate. This is so because when you have more stakes in the property; lenders see a lower level of risk. If you will be able to put 20% of down payment, you will usually get lower interest rates. In case, you won’t be able to a down payment of 20 percent or more, the lender will want you to purchase mortgage insurance, called private mortgage insurance to protect him in the case borrower stops paying the loan.

Credit Scores
Your credit score plays the most important role in determining your mortgage rate. It has been seen that borrowers with higher credit scores often pay lower interest rates. Lenders consider your credit scores to find out how reliable you are. Before you begin with mortgage shopping, the first step you must take is to check your credit score.

The best way to get the best mortgage interest rates for yourself is by shopping around and looking for a lender who satisfies all your requirements.