Applicants should know a few things about mortgage interest rates when they are going through the home buying process. This is especially true for first time home buyers, below we discuss a few mortgage interest rate tips buyers will want to remember.
- Your Interest Rate Is Based On Many Factors: Credit score, down payment, location and mortgage program ( FHA, VA, USDA , etc) are just a few things that determine what interest rate a borrower receives. Credit score is the main driver in determining a borrowers final interest rate. Example – a loan applicant that has a great credit ( over 720 score) can receive 1/2 percent lower interest rate when compared to a applicant that has a credit score of 620. It’s simple, higher credit scores means lower risk to financial institutions. Lower risk = lower interest rate.
- Interest Rates Change All The Time: Rates are determined by the financial markets – stocks, bonds ,etc. Interest rates change daily and are based on many different financial drivers. When shopping interest rates, always try to do it on the same day so you get a true apples to apples comparison.
- Locking Interest Rate vs. Floating: Most lenders will typically give a borrower the opportunity to “lock in” their interest rate once they have a complete purchase contract with a set closing date. You need a set closing date so you know how long to lock in. Locking your interest rate locks the rate for a period of time (normally 15 to 90 days). Depending on your level of comfort and market conditions, this will indicate if you should lock or float. If you decide to float your interest rate, you generally will lock the rate a week or so before closing.
- What is Rate Lock? Locking your interest rate protects you from market volatility and changes in interest rates for a period of time. Consult your mortgage loan officer prior to locking your interest rate.
- Interest Rate vs. APR (Annual Percentage Rate): The interest rate is the actual note rate which is used to determine the monthly principal and interest payment of your loan. The APR (Annual Percentage Rate) reflects the cost of your mortgage loan as a yearly rate. It takes into account certain closing costs like interest, discount / origination points, and any fees paid to the lender for processing the loan. The APR is generally higher than the actual note rate – this is normal and to be expected. The APR is simply a tool that allows borrowers to compare not only the interest rate, but the total cost of financing costs among various mortgage companies.
- What is a discount point or rate buy down? Discount points allow borrowers to buy the cost of their interest rate down to obtain a better home loan rate. The discount point is usually a percentage of the loan amount. For example, it might cost you 1% of the loan amount (1% of $200,000 is $2,000) to buy the rate down by .5%. This can sometimes make sense depending on how long you wish to own the home. Your trained loan officers will review the numbers and costs to see if a rate buy down is beneficial.
Florida & Georgia home buyers that have questions about these Mortgage Interest Rate Tips are encouraged to contact us at ph: 800-743-7556 or just submit the quick Info Request Form on this page.