Interest Rate & Your Monthly Payment

Base mortgage rates are set depending on what is happening or projected to happen in the economy. So, unfortunately, these are not something you have much control over.

Generally, mortgage rates tend to go up if the economy is doing well. A thriving economy usually means significant job growth and the possibility of inflation. When inflation occurs, the dollar loses buying power and lenders will hike interest rates to make up for it.  On the other hand, as the economy slows, you can usually expect mortgage rates to fall.

Mortgage investors pay attention to myriad economic factors, including trends in the stock market and movement in the housing market.

Any time the Federal Reserve meets, it is a newsworthy moment for mortgage industry professionals. The Fed looks at many of the same economic variables mortgage professionals pay attention to – job growth, inflation, stock prices, housing prices, etc. – to set short-term interest rates. That is not to say that The Fed sets mortgage rates. They don’t. Their published rates can, however, serve as a good marker for where mortgage rates may go. Fed rates and mortgage rates move independently but tend to trend in the same direction.

Individual lenders set their own rates incorporating base rates and other risk assumptions. Some assumptions are not necessarily related to the individual borrower. Loan term, for instance, tends to influence rates consistently in that longer-term loans will have slightly higher rates. Other assumptions are borrower specific and can result in different loan offers between applicants. You have significantly more control over these lender-specific criteria.

The most salient of all is probably credit score. Advertised rates are often based on a minimum credit score. Any score under that threshold may result in a slightly higher rate or a small fee to adjust for the risk. CapCenter, for instance, offers a no closing cost rate (published daily) for credit scores of 740 or above. A credit score under 740 may result in a small percentage fee to keep the interest rate the same.

Other assumptions include the debt-to-income ratio (DTI), loan-to-value (LTV), the type of loan, and the type of residence. An investment property, for instance, may come with a slightly higher rate than a primary residence.

All lenders generally consider the same criteria. Not all lenders, however, assess them in the same way. Some lenders are more willing to take on risk and are therefore more willing to overlook certain criteria another would look at critically. You may also find two similarly risky lenders who treat the loan differently – one with a higher interest rate and one with a one-time fee. It’s also possible that you come across a lender that is just plain overwhelmed and, even though you are a strong applicant, will offer a higher interest rate because they don’t have the capacity to process your loan.

For these reasons and more, it is important to shop around. Put your application in front of multiple lenders to see what they can offer. Once you’ve gathered multiple quotes and Loan Estimates, you can compare them head-to-head and pick the best option for you! We’d be happy to get you started!