When you’re looking for a new mortgage, it’s important to know what factors affect your loan rate. Today, we’ll take a look at 12 key factors that can have an impact on your mortgage rate.
1. Your Credit Score
Your credit score is the most important factor in determining your mortgage rate. The higher your score, the lower your interest rate. The lower your score, the higher your interest rate.
Your credit score is based on how you’ve handled your past finances and payment history: If you have a good history of making payments on time and not having too much debt, then it will reflect positively on this aspect of your financial health. On the other hand, if you’ve been late with payments or have maxed out various lines of credit (or both), then this will negatively impact how lenders view you as a borrower.
2. Your Down Payment Amount
If you are planning to buy a home and take out a mortgage, one of the first things that you will need to do is consider how much money you can afford to put down on your house. The amount that you are willing and able to pay upfront in order to purchase a property (called your “down payment”) has a direct impact on the interest rate that will be applied when calculating the cost of borrowing money for your new home.
The larger the size of your down payment, the lower interest rate will be applied by lenders because they trust that they will get their money back with time. Because of this trust factor, it may be wise for some homeowners considering purchasing their first house or refinancing an existing mortgage loan at some point in time during their life cycle as homeownership progresses over time – especially since most lenders offer lower rates if applicants have more equity built up within their properties due into large part due towards making timely payments throughout each monthly billing cycle while also taking advantage advantageous opportunities provided by various financial institutions like banks who offer special deals such as zero-interest balance transfers from credit cards onto personal checking accounts during promotional periods running anywhere from six months up – two years depending on which particular offer goes best suited accordinges needs.”
3. Your Loan-to-Value Ratio (LTV)
Your loan-to-value ratio (LTV) is the percentage of a home’s value that is financed by your mortgage. In other words, it’s the total amount of money you’re borrowing compared to what you’ll actually own once you take out the loan.
Lenders will only give you a mortgage up to certain percentages of your home’s value—this can be anywhere from 80% to 95%. The higher the LTV, the higher your interest rate will be.
4. The Federal Reserve
The Federal Reserve is the central bank of the United States, and it’s arguably the most important factor when determining how your new mortgage rate will look. The Federal Reserve can raise or lower interest rates at any time, which in turn affects mortgage rates. When they raise interest rates, they are making it more expensive for banks to borrow money from them, which means that banks will be less likely to lend you money at a low rate as well. When they lower interest rates however; they are giving banks cheaper access to money which creates competition among lenders and allows them to offer better deals on loans such as mortgages and credit cards.
The Federal Reserve typically makes decisions about raising or lowering its target range for short-term interest rates at their monthly meetings (also known as their FOMC meetings). However these decisions aren’t made lightly; so don’t expect changes overnight!
5. Employment and Unemployment Figures
The unemployment rate is a key factor that determines mortgage rates. The unemployment rate is the percentage of people who are unemployed and looking for work. It’s a key indicator of the health of your local economy, and it can give you an idea of how stable it will be in the future.
The most accurate measure of this number comes from a monthly survey by the Bureau of Labor Statistics (BLS). This survey gives you an up-to-date picture on how many people are actively seeking work within your area, which can help determine if its time to move or stay put if you want to secure as low an interest rate as possible.
6. Inflation Rate Projections
The inflation rate is a measure of how much the price of goods and services is rising, which affects your income. Inflation has been below 2% since 2016, but the Fed expects it to rise above 2% in 2020.
Inflation projections are key to determining interest rates because they determine how risky a lender thinks an investment will be over time. If they expect prices to rise, they’ll want more interest from you on your mortgage loan because they need compensation for providing funds at an uncertain rate over multiple years.
7. Expected Government Policy Changes
Expected Government Policy Changes:
The next factor that can affect your new mortgage rate is expected government policy changes. These are changes in laws, regulations and policies that affect the whole economy, as a result of which lenders must adjust their rates accordingly for fear of losing out on business to other lenders who have adjusted their rates. This is because if one lender’s rate is higher than another’s, then borrowers will opt for the lower one and vice versa.
Changes in government policy may include tax cuts or increases; changes in interest rates; regulation or deregulation of industries; introduction or repeal of regulations affecting the housing market such as Fannie Mae’s “affordable housing” provisions (which were recently repealed). Anytime there is an expectation of such change(s) occurring soon, mortgage rates will be adjusted upwards prior to any actual change occurring so as not to lose out on business later down the line when those changes do occur – otherwise known as front-loading pricing strategy!
8. Supply and Demand in the Home Market (Affordability)
One way to effect your mortgage rate is by understanding the market. The supply and demand of houses has everything to do with the cost of housing, and a new mortgage rate. If there are more people looking to buy houses than there are homes for sale, then prices will increase and vice versa.
There may also be seasonality involved in this rule. For example: if it’s springtime, then you might expect that more people would be interested in purchasing real estate because they can finally see their lawns again!
9. What Is Going on in the Stock Market?
The stock market is a good indicator of the economy. If investors are confident in their investments, they will be more likely to purchase homes. If they are not confident in their investments or markets, they will be less likely to purchase homes which can lead to fewer sales and ultimately lower home prices!
The bond market also affects interest rates on mortgages so keep an eye on it for any changes that could affect you as well!
10. The Bond Market’s Treasury Yield Curve
The bond market’s Treasury yield curve is an indicator that predicts the direction of the economy. The yield curve is the difference between interest rates for bonds of different maturities. Typically, longer-term bonds have higher interest rates than short-term ones because investors demand more compensation for tying up their money over a longer period of time.
The Fed’s monetary policy has historically been in charge of influencing this relationship by raising or lowering its target for federal funds rate (the rate banks charge each other). When it wants to stimulate economic growth, it lowers this rate—which puts downward pressure on long-term debt yields and upward pressure on short term debt yields—and when it wants to slow down economic activity or combat inflationary pressures (or both) it raises this rate—which has opposite effects on long and short term debt yields respectively.
11. Who Buys Mortgages and Why? (Investor Demand)
Investors can be a powerful catalyst for mortgage rates, especially if they’re looking to invest their money in a safe place. They often look for mortgages to diversify their portfolios, generate income from interest payments or get tax breaks on the interest payments made by homeowners. If you see investors as part of your market and want them to continue buying up mortgages, then keep your eye on the following factors:
The yield curve: A steeply sloped yield curve indicates that investors are optimistic about economic growth and therefore more likely to buy fixed-rate mortgages. An inverted yield curve (with short-term rates higher than long-term ones) usually signals recession and prompts many investors to rush out of longer term bonds into shorter term ones, which increases demand for fixed rate loans during this period. In addition, an inverted curve will also have an effect on adjustable rate loans with introductory periods longer than one year — these borrowers may not renew when their introductory period ends due to rising interest rates (although many lenders offer five year terms).
12. Government Housing Policies Continuity/Change Takeaway: There are many factors that can influence mortgage rates, including the economy, supply and demand, and your credit score!
Loan To Value Ratio
Home Sales Activity
Employment and Unemployment Figures (Jobs)
Expected Government Policy Changes (Financial Stability) -What will Fannie Mae and Freddie Mac do next? Will they continue to purchase mortgages? What about the Federal Reserve raising interest rates? How will this affect mortgage rates? Is inflation expected to rise or fall? These are all questions that can affect your new mortgage rate. Supplies of homes on the market have been low throughout 2016, as well as 2017 so far. If there aren’t enough houses available for sale, then buyers will pay premiums over asking prices in order to get into a home sooner rather than later – increasing demand for already scarce inventory! When supply is low, prices go up! This makes it more difficult for you and me when we want our own piece of land though…
There are many factors that can influence mortgage rates, including the economy, supply and demand, and your credit score! The key is being aware of these factors and understanding how they might affect your mortgage rate. If you have questions about which factors may be affecting your rate or what other options are available for you, West Michigan Mortgage is here to help!