Many Factors Influence Mortgage Rates Charged On New Homes
Other than the price of gasoline, few things seems to change as often or be as varied as mortgage rates. Many factors affect the rates a potential homeowner is quoted when they begin to look for a new home loan, including their credit score, their debt to asset ratio and their potential risk of not paying off the loan. Even if they have a stellar record with a lender holding other notes from them, one or two bad marks on their credit report can cause their mortgage rates to go up.
In addition to the borrower, the amount of money available in the market for home loans also affects mortgage rates that can vary by market. As investors become nervous about a housing melt down there may not be as much cash available for home loans. Even those with good credit scores will be competing for the same credit dollars, increasing the mortgage rates on the available money.
Essentially, there are two types of home loan rates, fixed rate and adjustable rate mortgages. A fixed rate mortgage sets the mortgage rates for the life of the loan while an adjustable rate is controlled by the prime interest rate. If the prime rate falls, the mortgage rates fall, but if it increases the mortgage interest increases as does the monthly payment.
Timing Is Everything With Combination Loans
Another option offered by some lenders is loans with a fixed rate for a set time limit before they automatically transfer to adjustable mortgage rates. For example, it may be possible to obtain a home loan with a fixed rate for two to 10 years, but at the end of the period the rate will be adjusted to match the prevailing prime rate.
These type of loans can be a gamble as when the mortgage rates so is the monthly payment and if the rate goes up significantly, being able to afford the new higher monthly payments can be a problem. On the flip side, if the rate goes down significantly, it can result in higher savings from the monthly bill.
When in the market for a home loan it pays to sop for the best mortgage rates available. Different companies will have different sets of criteria they use to set mortgage rates for individual borrowers. Rates can vary as much as a few percentage points between lenders and potential buyers should make sure they get the best deal possible.
