Mortgage rates are the interest rates set for a home loan. It is also known as a “mortgage.”

Mortgage rates are derived from mortgage-backed securities (MBS), bonds backed by U.S. mortgages. Mortgage rates vary depending on the type of loan and the lender and can be confusing!

Understanding what factors influence mortgage rates might help you comparison-shop for mortgage rates and feel confident that you’re receiving a fair price. Ready to dive in?

How Mortgage Rates Are Determined

Comparing loan offers is critical if you want to get the greatest home deal. Unfortunately, loan estimates are jam-packed with data and statistics, which can be challenging to understand if you’re a first-time buyer.

Don’t let all of these figures overwhelm you, though. As long as you understand the mortgage rate you’re receiving, you have a solid foundation on which to compare your loan options. 

What Are Mortgage Rates?

A mortgage rate is the interest rate you’ll be charged to borrow money. The yearly interest amount will be a proportion of your total loan balance.

There are two types of mortgages: fixed-rate and adjustable-rate. Your interest rate is constant throughout the duration of your loan with a fixed rate.

For example, a lender quotes you a 6% fixed mortgage rate on a $300,000 loan. This means you’ll pay 6% of your loan balance every year until you sell the home, refinance, or pay it off.

An adjustable-rate mortgage (ARM) is a type of home loan with an interest rate that fluctuates after a certain amount of time. For example, the 5/1 ARM is one of the most popular adjustable-rate mortgages. For the first five years, you will receive a set interest rate, and then it adjusts once a year after that.

Factors That Determine Mortgage Rates

Lenders set mortgage rates on a borrower-by-borrow basis. They consider many different factors, both larger economic and personal factors like the borrower’s individual financial situation.

Larger economic factors can include:

• Strength of the economy
• Inflation rates
• Employment
• Consumer spending
• Housing construction and other market conditions

On the other hand, personal economic factors typically include:

• Credit score
• Credit history
• Down payment size
• Loan-to-value ratio
• Loan size, type, and term
• Debt-to-income ratio
• Location of the property

Your unique financial position will have an impact on the interest rates you’ll get. The quality of your credit score, as well as factors like your down payment size, the amount of money you’re borrowing, your income, and more, will all play a role.

To get the lowest interest rate, you should have:

• A good credit score
• A down payment saved up
• A low loan-to-value ratio
• A low debt-to-income ratio

How To Shop For The Right Mortgage Right

Mortgage rates are unpredictable, changing without notice or warning. When shopping for a mortgage, it’s vital to understand the techniques as well as have a strategy. You must shop the “right way” if you want to get the best deal.

It’s also essential to keep in mind that when you’re looking for a mortgage rate, you’re shopping for a mortgage rate as well as any associated closing costs. You can’t have one without the other.

Mortgage lenders will never offer you a rate without including any associated costs, so keep an eye on your quotations – a rock-bottom rate is meaningless if your closing expenses are incredibly high.

There are two options for obtaining mortgage rates. You may either look for a particular mortgage rate or a specific closing cost. When you can isolate a single loan variable for comparison, such as “cost” or “mortgage rate,” it’s simple to determine which mortgage company is offering the best deal.

Let’s pretend you want a rate of 4.00 percent, for example. This is your “fixed” variable. So all you have to do now is inquire about mortgage lenders’ lowest closing fees at a 4.00% interest rate.

Alternatively, let’s say you want to take out a loan with no closing costs. In this scenario, closing expenses are your fixed variable – they’re $0.

To choose the best mortgage lender, simply inquire with each one about what their interest rate would be if there were no closing costs. Then, you pick the lender who offers you the lowest rate.

Conclusion

Are you looking to buy a home in the near future? If so, understanding what factors influence mortgage rates might help you comparison-shop for mortgage rates and feel confident that you’re receiving a fair price. Interest rates can be fixed or variable, depending on the type of loan product desired – it’s important to compare both types before making a decision. 

We can help you get a fair price for mortgage rates. So call us at (406) 969-4141 or reach out online today. We’ll get back to you with personalized advice on how to find the right loan company today!

We have contacts in Billings, Montana, that help our clients find the rate for them so that they can get the house they want when they want it.