Understanding What Factors Affect Your Mortgage Rate

Everybody wants the best rate on their mortgage, but few people know exactly what goes into determining that rate. For many, it can seem complicated. Knowing the factors that impact your rate, though, can put you in a better position to negotiate and get a deal that works for you. Here’s a breakdown of the top influences on your mortgage rate:

Credit Score

One of the first things lenders look at is your credit score. This three-digit number reflects your credit history and payment reliability based on things like credit cards, loans, and other financial commitments. A high score shows lenders that you’re a low risk, which often means a better interest rate. If your score is lower, it can make securing a good rate a bit tougher.

Ask yourself: Have I checked my credit score lately? Are there steps I can take to improve it before applying?

Down Payment

The size of your down payment is another major factor in your mortgage rate. A larger down payment typically means a lower rate, as it reduces the lender’s risk. Essentially, the more you’re able to put down upfront, the more it shows you’re committed and financially prepared. A higher down payment also lowers your loan-to-value ratio, which can improve your rate further.

Think about: How much can I realistically put down? Would increasing my down payment help me secure a better rate?

Home Location

Where you’re buying matters. The area’s market conditions and trends can directly impact your rate. For example, if you’re buying in an area with high demand and higher loan default rates, lenders might charge more to offset the risk. But in areas with stable or growing markets, you may find more favorable rates.

Ask yourself: What’s the market like in the area I’m buying? Are there local trends that could affect my rate?

Property Type

The type of property you’re looking to buy also affects your rate. Single-family homes typically come with lower rates, as they’re viewed as lower-risk investments compared to vacation homes or multi-family units, which are more likely to see financial issues or fluctuating income from tenants. Market trends play a big part here, so be mindful of this if you’re looking at anything beyond a primary residence.

Consider: Is this a primary residence, or am I looking at a rental or vacation property? How could that impact my rate?

Economic Factors

Economic conditions play a big role in determining mortgage rates, and these are factors outside your control. For example, when inflation concerns rise or the economy strengthens, interest rates typically follow suit. Actions by the Federal Reserve, while not directly setting mortgage rates, can also influence them by impacting the money supply. Even though you can’t control these factors, keeping an eye on economic trends can help you decide the best time to buy.

Think about: How is the economy doing? Are rates expected to go up or down in the coming months?

Loan Type

The type of loan you choose impacts your rate and terms. Fixed-rate, adjustable-rate, and government-backed loans like FHA or VA each come with different eligibility requirements and interest rates. Shorter loan terms tend to come with lower interest rates, so if you’re focused on paying less over the life of the loan, a shorter term might be a smart choice.

Ask yourself: What type of loan makes the most sense for me? Am I looking for stability with a fixed rate, or would a shorter loan term be better for my long-term financial goals?

Ready to Talk to a Nuvision Mortgage Loan Consultant?

Understanding what affects your mortgage rate can help you prepare and secure the best deal. At Nuvision Credit Union, we’re here to guide you every step of the way. Our Mortgage Loan Consultants can help you assess your options, answer questions, and find a mortgage that fits your needs.

Got questions? We’re here to help. Reach out to one of our Nuvision Mortgage Loan Consultants to chat about your options, answer any questions, and find the right mortgage for you. Let’s make this home-buying journey as smooth as possible.