Since the cost of a single residential property most likely runs into a hundred thousand dollars or more, most people cannot afford to pay in full a transaction of this magnitude. That certainly exceeds the amount most people have sitting in their bank account. Moreover, as a solution, lending institutions or usually banks extend financial assistance to people who wish to buy a residential property. Since all financial institutions are commercial entities, they of course levy an interest on this loan.

The Mortgage Rate

The rate of interest levied on a loan for buying a residential property is deemed a mortgage rate. The property against which the loan is drawn is mortgaged or kept as collateral with the lender, hence the name mortgage loan. Mortgage lending is a risky as well as capital intensive business. Some of the leading mortgage lending companies in the U.S. includes – Wells Fargo, Citibank, Bank of America, Chase Mortgage, and US Bank.

What You should Know about Mortgage Rates?

You might have noticed that not all people obtain the same mortgage rate even if two people bought identical properties in the same area. The following are factors that can and do affect your mortgage rate:

Government Policy and World Events – The finance money that you receive emanates from various sources and governmental policies usually dictate mortgage rates. If the policies are favorable for banks, the rates are low and vice versa. Events like the tsunami in Japan or a catastrophic event like 9/11 can also affect mortgage rates.

Down Payment

As a norm, the lender asks you to pay a certain percentage of the property value from your own pocket before you even begin to move in, when the contract is signed. The greater the down payment, of course the overall loan amount is less but the subsequent mortgage rate should be lower as well which is critical – this means that you will pay less over the life of the loan in totality to fully own that home.

Your Credit Score

People who have credit scores in excess of 700 are offered better mortgage rates than people with lower credit scores. Since borrowers with high credit scores are more likely to pay back the loan, the lender is biased towards them in regards to the mortgage rate. Though having a higher income may mean that you can afford higher monthly payments, it barely affects the final mortgage rate offered. Government backed companies or entities such as the FHA have stricter credit score requirements.

Tenure

The time period during which the loan needs to be paid in full is termed as the tenure of a mortgage. This can be anywhere between 15 to 30 years. The greater the tenure, generally lower the mortgage rate will be. The converse is also true.

Type of Mortgage Loan Product

A mortgage loan can be of fixed-rate type or of floating-rate type. In a fixed-rate type mortgage loan, the mortgage rate remains fixed throughout the tenure irrespective of the market trends. In floating-rate type mortgage loan, the mortgage rate moves in tandem with the market trends. Both have their own set of pros and cons.

Property Type

A first home purchase under favorable circumstances is usually financed at a lower mortgage rate. The location of the real estate property is also taken into consideration.

The Mortgage Broker

A mortgage underwriter or broker is the person who takes into consideration all these factors and decides whether or not to offer you financial assistance and at what prevailing mortgage rate. Though the aforementioned aspects are major factors that certainly can determine the mortgage rate you are offered, a mortgage broker also plays a significant role in this process in your attempt to secure a low or a long-term favorable rate.

A Pivotal Conversation

If you have decided to buy a house, it is highly advisable that you approach a mortgage broker and present your case to him or her. Taking into consideration all the pertinent factors, your mortgage broker will explain to you which product is most suitable to you, which property could correlate with a lower mortgage rate, among other vital points to consider.