- September 27, 2017
- Posted by: steve
- Category: mortgage rates
Finding the current mortgage rates for homes you’re interested in buying can be a hassle sometimes. Luckily, we’ve provided resources to help you here.
Even after the housing crash in 2008, most economists agree that owning a home is still one of the most important ways to build wealth. Homeowners benefit by experiencing the pride of ownership, and by building equity.
That said, the complex process of purchasing a home and taking on a mortgage can be intimidating to many buyers. Prospective homeowners are often unsure of how to get qualified for a loan, or how to find the current mortgage interest rates.
Let’s take a closer look at how you can find current mortgage interest rates, and how you can get the best rate on your mortgage.
A Brief Overview of Mortgage Interest Rates
First, let’s look at what interest rates are, and how they affect your mortgage.
Your Interest Rate is Part of Your Monthly Payment
When you start shopping for a home, you may hear your realtor or lender use the term PITI to refer to your monthly payment. This is an acronym that refers to four mortgage-related costs:
- Principle: This is the monthly installment that you pay on the actual value of the home. This is determined by the cost of your home and the length of your loan.
- Insurance: All homeowners with a bank-backed mortgage must have homeowner’s insurance for their home. Depending on the type of mortgage you have, you may also need to purchase private mortgage insurance.
- Taxes: All homeowners pay property taxes based on their home’s size, value, and location.
- Interest: Mortgage lenders make money on their loans by charging interest. The amount of your monthly interest payment will be determined by the size of your loan and your interest rate.
Types of Interest Rates
When you take out a mortgage, you have the option to choose a fixed rate loan and a variable rate loan. Each type of loan has its own advantages and disadvantages.
When a home buyer chooses a fixed rate loan, they lock in current mortgage interest rates for the life of their mortgage. So for instance, if today’s rate is 3.8%, a 30-year fixed rate loan will stay at 3.8% for the life of the loan.
One of the greatest benefits of a fixed rate loan is consistency. Since the interest rate doesn’t change, the monthly payment will stay the same. Also, even if interest rates rise, the rate on the mortgage will stay the same.
By contrast, a variable rate mortgage has an interest rate that changes with the markets. For this reason, these loans carry a certain amount of risk.
On one hand, if interest rates go up, the monthly payment on the mortgage will increase. On the other hand, if rates go down, you will be able to take advantage of those lower rates without having to refinance your loan.
Factors to Consider with Interest Rates
When looking at current mortgage interest rates, buyers often assume that lowest rates are the best rates. While this is generally true, there are some instances where a higher interest rate might make more sense.
For instance, sometimes buyers choose a loan with a higher interest rate so they can make a smaller down payment. This way, the homeowner can still have liquid cash on hand.
Others choose a loan with a higher interest rate to avoid paying private mortgage insurance. Unless you can afford a 20% down payment, chances are that you will end up paying private mortgage insurance. This insurance covers the cost of homeowners who default on their loan.
The amount of mortgage insurance you pay, however, will be determined by the type of loan you have. With an FHA loan, you must pay insurance for the length of the loan. By contrast, borrowers with a conventional loan do not have to make mortgage insurance payments once they’ve paid off 80% of the loan.
Since FHA loans are guaranteed by the federal government, they typically come with a lower interest rate than conventional loans. That said, the higher interest rate can be worth it to avoid paying mortgage insurance. This is especially true because, unlike mortgage insurance, interest paid on your mortgage is tax-deductible.
How Current Mortgage Interest Rates are Calculated
Now that we have discussed how interest rates affect your loan, let’s look at how you can determine what current mortgage interest rates are.
How Markets Set Interest Rates
There is no single institution that is responsible for setting mortgage interest rates. Rather, there are many market factors that work together to determine current mortgage interest rates.
Most home owners work with a bank, credit union, or mortgage broker to take out their loan. This lending institution then turns to the secondary mortgage market to sell this loan and make a profit.
For investors on the secondary mortgage market, loans with a higher interest rate are more attractive, because they offer a higher profit. The current mortgage rates, then, are determined by what rates investors on the secondary mortgage market are willing to invest in. Factors like inflation and competition from other investors will determine what investors are willing to pay.
How to See the Most Current Mortgage Rates
Current mortgage rates are constantly fluctuating based on factors in the market. For the most part, changes from day to day vary only by a couple tenths of a percentage point. Occasionally, however, factors like new economic data can cause interest rates to jump more.
To see the most up-to-date rates, you can check with your lending institution, or use our rate checker.
Locking Current Mortgage Rates
If you are ready to start looking for a home, we recommend taking some time every day to check out the interest rates. Over the course of a few days or weeks, you will get an idea of how the rates are trending.
There are some cases where you may want to lock in the interest rate on a particular day. Perhaps you notice that rates are trending up, and want to lock in today’s rate before it gets higher. Or, maybe the rate gets particularly low, and you want to take advantage of it.
In this situation, you can work with your mortgage lender to sign a mortgage lock document. This is a contract that will lock in current mortgage rates for 30 days. This gives you about a month to look for a home while taking advantage of the low rate.
Other Factors that Affect Your Interest Rate
While market factors have a big impact on mortgage rates, they are not the only factor that will determine the interest rate on your mortgage. There are many individual factors related to your specific loan that will affect your interest rate.
When you use a rate checker to find current mortgage rates, use one that takes these personal factors into consideration. This way, you will get the most accurate estimates of what kinds of rates you can expect.
The Type of Loan
There are several types of loans available, including conventional loans, Federal Housing Administration (FHA) loans, Veteran’s Administration (VA) loans, and United States Department of Agriculture (USDA) Loans.
The type of loan you choose will affect your interest rate. For instance, loans backed by the federal government, like FHA and VA loans, often have lower rates.
Your FICO Credit Score is a number that indicates to potential lenders how trustworthy of a borrower you are. Factors that affect your credit score include your total amount of debt, the total amount of credit used, timeliness of payments, and the number of loans you have.
Typically, borrowers with a higher credit score are able to get a lower interest rate. Keep in mind that if you and your partner are applying for a mortgage together, both of your credit scores will be considered. If you or your spouse has a credit score under 580, you might want to consider taking time to build or rebuild your credit before buying a home.
Home Price and Loan Amount
One factor that determines your interest rate is the likelihood that you will default on your mortgage. Borrowers with a higher risk of defaulting are given higher interest rates. For this reason, taking out a larger mortgage usually leads to a higher interest rate.
The percentage of the home’s value that you choose to finance will also impact your interest rate. For instance, if you put down 20%, lenders will see you as having a higher stake in paying off your loan. By contrast, borrowers who only put down 5% are seen as riskier.
Length of the Loan
Borrowers typically choose a mortgage with a term of 15, 20, or 30 years. The shorter term you choose, the lower your interest rate will usually be. Also, shorter loans have lower overall costs, because you will pay interest for fewer years.
Take Advantage of Low Rates Today
If you are ready to take advantage of current mortgage interest rates to buy a new home or refinance your current one, contact us. Our lending experts will work with you to make sure you get the best rate.