The interest rate for your specific transaction is determined by several “risk” factors. In other words, the less “risky” the loan file, the better the interest rate you’ll be offered. Call Paul TODAY for a FREE written estimate for your specific loan scenario. Below are some of the risk factors considered by mortgage lenders:
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.