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Mortgage: Factors That Affect Your Mortgage Rate

Higher Loan Amount

Rates Up

Longer Term of Loan

Rates Up

Adjustable Rate

Rates Down

Higher Down Payment

Rates Down

More or Higher Discount Points

Rates Down

Better Credit Quality

Rates Down

Higher Income Level

Rates Down

Longer Lock In Period

Rates Up

** Ask your Loan Officer for complete details

 

The amount of your loan can increase your interest rate if the amount financed exceeds the conforming loan limits established by Fannie Mae and Freddie Mac. These are federal loan departments. The conforming loan limit is determined at the beginning of each year.

Shorter term loans, such as 15 year or 20 year notes, can save you thousand of dollars in interest payments over the life of the loan, but your monthly payments will be higher. An adjustable rate mortgage may begin with a lower interest rate than a fixed rate mortgage, but your payment amount will increase when the interest rate goes up and the rate at lock-in is determined by adding a set interest rate to the prime rate at that time..

 

A larger down payment, greater than 20% - will give you the best possible rate. With down payments of 5% (if allowed) or less you should expect to pay a higher rate as you are starting with less equity as collateral. If you've got the cash now and want to lower your payments, you can pay points on your loan to lower your mortgage rate. One point equals one percent of the loan amount. It's a simple concept, really: in exchange for more money upfront, lenders are willing to lower the interest rate they charge, cutting the borrower's payments. Some of the closing costs are fees associated with securing the loan, if you don't want to pay all of the closing costs, expect a higher interest rate which will pay the lender additional interest over the life of the loan.

Credit quality and debt-to-income-ratio affect the terms of your loan through your FICO Score. If you have good credit and your monthly income far surpasses your monthly debt obligations, you will get approved at a lower interest rate. However, if your monthly income barely covers your minimum debt obligations, even if you have a good credit report, you will not receive the lowest available interest rate.