Personal Finance. Money. Investing.
Updated at 14:42

However, with that fun and thrilling feeling of searching for a home comes the inevitable worry of obtaining a decent mortgage loan. And while real estate brokerage firms like Compass will always advise buyers to work with a lender they feel appreciated, understood, and comfortable with, there are a lot of other variables that need to be considered too. 

To help you feel a little more confident when interest rates and other financial matters are discussed, here are some of the biggest factors that can impact your mortgage interest rates.

Your credit score

This is probably the most important factor that lenders are looking for when they calculate how reliable you’d be as a potential borrower. Determining your credit score includes various things like all of your debts, credit cards, other loans, and your repayment history on those debts. 

A credit score tends to be in the range of 300-850. The higher your score, the lower your interest rate will be. 

Your loan term

In general, the term of your loan has a lot of contributing factors to your interest rates. Short-term loans will inevitably have much lower rates of interest and costs, but of course, the monthly payments will increase significantly. 

If you’re concerned about these contributing factors, the majority of lenders will help you to find a mutually acceptable rate that’s within your budget.

The downpayment you’ve made

As you’d expect, the higher your down payment is, the lower your interest rate will probably be. The majority of lenders will see you as a low-risk borrower if you have more of your own money put into the place. 

If you can hang in there, save, and get a solid 25% or so of your own cash in a new place, then you’ll probably end up getting a better (in other words, lower) mortgage loan rate. 

Home price/loan amount ratio

Essentially, this is the price of your place, minus the down payment or borrowed mortgage loan amount. If you’re borrowing an unusually small or large amount for your mortgage, your interest rate will rise significantly. 

If you’re able to keep the amount you plan to borrow at the forefront of your housing search, you’ll be able to get a rough idea of how it could impact your mortgage rate. It’s important to calculate a ballpark figure that you’re comfortable with paying each month. 

The type of interest rate

Generally speaking, you’ll encounter two kinds of business rates - fixed rates and adjustable rates. As the name implies, a fixed rate doesn’t change over time, whereas adjustable rates will eventually rise or fall based on the real estate market. 

While adjustable loans tend to have lower interest rates, it’s important to understand how much they could increase due to fluctuations in the market.

About Finance Monthly

Universal Media logo
Finance Monthly is a comprehensive website tailored for individuals seeking insights into the world of consumer finance and money management. It offers news, commentary, and in-depth analysis on topics crucial to personal financial management and decision-making. Whether you're interested in budgeting, investing, or understanding market trends, Finance Monthly provides valuable information to help you navigate the financial aspects of everyday life.
© 2024 Finance Monthly - All Rights Reserved.
News Illustration

Get our free weekly FM email

Subscribe to Finance Monthly and Get the Latest Finance News, Opinion and Insight Direct to you every week.
chevron-right-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram