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What Impacts Your Mortgage Rate?

By
Real Estate Agent with Keller Williams Capital Properties DC AB15253

The mortgage process can be complicated if you jump in without any prior knowledge on home-buying and lending. One of the best tools you can arm yourself with (besides a trustworthy lender and Realtor) is an understanding of how your mortgage interest rate is calculated.

Credit Can Make or Break You

Your credit score will determine how reliable you are in the lending world. The higher your score, the lower your interest rate will likely be. Check your credit on one of the three major credit reporting agency sites—TransUnion, Experian and Equifax—or your credit card company may have a free credit report service (although these aren’t as reliable). Take steps to improve your FICO score for a better chance at a lower interest rate.

If there is anything on your credit score and credit report that doesn't look right, track it down and fight to get it off your report.  It is possible to correct mistakes on your credit report. 

Here are some other things that can affect your interest rate. 

Size and Location Matter

  • State or County: Even your place of residence can affect your interest rate.
  • Mortgage Lenders: Shop around with multiple lenders, including local ones. Interest rates can vary from company to company, even if they’re located in the same town.
  • Loan Size: The size of your mortgage can also impact your interest rate. The bigger the loan, the higher your interest rate will be if you’re not putting more money down.
  • Down Payment Size: Your mortgage interest rate may also depend on how much you’re putting down and if your loan includes closing costs and private mortgage insurance (PMI). Putting down less than 20 percent can increase your risk factor and may require PMI, but your interest rate may be lower depending on the loan.
  • Is it a Condo or Fee Simple?  Typically a condo is going to have a slightly higher interest rate.  Be prepared for that and ask each lender how much the condo premium is going to be. 

Not All Loans Are Created Equal

Loan Length: Your loan term plays a bigger role in interest rate calculations than you think. Have you decided whether you want to pay off your loan in 15 or 30 years? You may pay more per month with a shorter term, but you’ll be paying less interest over the life of your loan. Short-term loans may also have a smaller interest rate.

Fixed or Adjustable: You’ll also have to consider whether a fixed- or adjustable-rate loan is right for you. Your interest rate can change over time if you choose an adjustable-rate loan. It typically starts off lower than with a fixed-rate loan, but will likely increase depending on market conditions.

Loan Type: Interest rates can also vary according to your loan type. Choosing a loan can be overwhelming, but talking to multiple lenders can help you understand your best options. Some of the more popular loans are conventional, Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) loans. While FHA loans have less down payment restrictions and a smaller interest rate, your monthly payment can be more expensive due to the required PMI added on. VA loans can have smaller interest rates and don’t require PMI like FHA ones do. Although conventional loans may have higher interest rates, they are widely accepted in the real estate industry as dependable

If you are looking for a home in the DC metro area, please reach out and ask me for for my list of reliable lenders.  You can call me at 240-401-5577 or email me at lise@lisehowe.com. I look forward to hearing from you! 

Roy Kelley
Retired - Gaithersburg, MD

This is good information to share with prospective mortgage borrowers.

Mar 30, 2023 10:45 AM
Lise Howe
Keller Williams Capital Properties - Washington, DC
Assoc. Broker in DC, MD, VA and attorney in DC

Roy Kelley - thank you so much for your kind support! 

Mar 30, 2023 11:11 AM
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

This is an excellent post with great information. Thanks for sharing it.

Have a super fantastic week!
Joe Jackson, Realtor-KWCP

Mar 31, 2023 04:35 AM
Nina Hollander, Broker
Coldwell Banker Realty - Charlotte, NC
Your Greater Charlotte Realtor

Hi Lise... perfect explanation to why when buyers ask what today's interest rate is, we can't give them a rate! 

Mar 31, 2023 05:47 AM
Kristin Johnston - REALTOR®
RE/MAX Platinum - Waukesha, WI
Giving Back With Each Home Sold!

Great post!  Thanks for sharing and enjoy your day!

Apr 02, 2023 07:21 AM
Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Lise, I had a couple of buyers that asked for concessions to buy-down the interest rate, which sure worked out for them.

Apr 02, 2023 09:38 AM