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How Do Lenders Determine Home Mortgage Loan Interest Rates? [mortgage-investment.blogspot.com]

How Do Lenders Determine Home Mortgage Loan Interest Rates? [mortgage-investment.blogspot.com]

Ever wondered how banks and mortgage lenders determine what interest rate they offer you? I did so I've done a little research I hope you find helpful. In some ways it's a simple method that makes sense when you look at it as a step by step process. Different lenders place emphasis on different factors so it does pay off to find a lender who finds your credit worthiness strengths important. If you do take the time to shop around you will greatly improve your chances of getting the best loan available. Some of the items on the list below are obvious but many people don't take the time to clean up their credit before they apply for a loan. Know that lenders will be checking these items about you as they decide on your rate, terms and loan details.

1) What do you make each year? As your income level rises in the eyes of the lender you become a less risking loan candidate.

This allows them to offer you a lower interest rate.

2) What is your Credit score? Here's a no brainer. The higher your credit score, the lower the rate. A credit score of 720 or above is now considered a good score by lenders today.

3) What is your Debt to income ratio? Pay off as many of your credit cards, auto loans or other loans as you can. If you keep your other debt as low as possible lenders will see you as a good risk and reward you with a good interest rate on your home.

4) How much do you want to borrow? Here's one that doesn't seem fair but it is true for all lenders the more you borrow compared to the sales price, the higher your rate will be. Remember the old joke - lenders would rather loan money to people who don't need it.

5) How much will your down payment be? Obviously this has two affects on the cost of your loan.

First, the bigger the down payment, the lower the interest rate. Second, the less your loan amount, the less interest you will pay.

6) How many years do you want the loan for? Basically the more years, the more interest the lender earns. Lender's love to offer 30 year fixed rate mortgage quotes. Why? 30 years of interest income!

7) What type of loan is it, fixed or adjustable rate? ARM's have become very popular because they offer a lower rate for an agreed on time but then they adjust annually so the lender has complete control of you monthly payments until you refinance.

8) What type of closing costs are included in the loan? Many types of mortgage loans include something called "points" this is basically a payment of one percent for each point made as a prepayment within your closing costs. Mortgages with points offer a lower interest rate throughout the term of the loan.

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