Loan Type: Will your mortgage be Conventional, Government insured (FHA, VA), or a “Portfolio Product” (Portfolio Products are not endorsed by Fannie Mae or Freddie Mac, nor are they insured by the Government).
Loan Term: Will your mortgage be a 30 year fixed? A 15 year fixed? A 10 Year Fixed? Typically, the shorter the term of your mortgage, the lower the interest rate. In other words, a 10 year fixed rate will be lower than a 15 or 30 year fixed.
Transaction Type: Purchase or Refinance? If you are refinancing your current mortgage, are you simply lowering your rate and monthly payment or are you interested in “cashing-out” some of your equity to pay off debt, upgrade your home, purchase another property, etc.?
Credit Score: Typically, especially with conventional mortgages, your interest rate is driven by your FICO score. There are 3 different bureaus that report a score (TransUnion, Experian and Equifax). Lenders consider the middle of the 3 as your effective score. The higher your FICO score, in most cases, the better your interest rate will be.
Loan-To-Value Ratio: This is the ratio of your loan balance to the value of your property. If your home is worth $100,000 and your loan balance is $80,000, then your loan-to-value ratio, or LTV, is 80%. The lower the LTV, the better the interest rate as it makes for a less risky investment for the lender.
Loan Amount: The size of your loan is certainly a factor in determining your interest rate. Larger loans are riskier for the lender and usually come with a higher interest rate. There are certain loan amount thresholds at which the interest rate increases, depending on your loan type.
