Factors That Impact Your Mortgage Rate
Additional Factors That Impact Your Mortgage Rate
We understand that your interest rate is one of the most important factors in your mortgage. After all, a lower interest rate means a lower total monthly payment. But how is the interest rate determined? Previously, we’ve addressed how Credit Score, Down Payment, Loan Type, Property Type/Location, Loan Term, and Interest Rate Type can affect your rate. Today we will address some additional factors that can affect your rate.
Does Your Mortgage Payment Include Escrows?
Escrows are a portion of your mortgage payment allocated toward paying your property taxes and homeowner’s insurance payment. When you make your mortgage payment each month, the portion that goes towards taxes and insurance is put into an escrow account, which holds onto the funds until the taxes or insurance premium become due/payable. The funds are then disbursed directly from the escrow account, to ensure the taxes and insurance premium are made on time.
Some loan products require an escrow account. Others leave it up to the applicant to decide if they want to use an escrow account or if they want to be responsible for paying the taxes and insurance premiums on their own.
Generally speaking, choosing to waive the escrow account and take on that responsibility for yourself will also lead to a slightly higher interest rate.
Rate Lock Period
When you lock in your rate, you can choose how long to lock for. Your rate lock period needs to cover the time it will take to close your loan. The most common lock periods available are 15, 30, 45, and 60 days. Some lenders may offer extended locks in addition to these. In general, the longer your lock term, the more expensive the associated cost/credit will be. This could impact what rate you wind up choosing to lock at, if you are in need of a specific amount of lender credit or cost associated with the rate lock. Your mortgage banker will go over this information with you when you make the decision to lock.
The purpose of your loan can impact your rate. For example, a cash-out refinance is often times going to have a higher cost associated with the rate than a limited-cash out refinance, also known as a rate/term refinance.
Part of your loan application process will involve addressing the occupancy type. Will you be occupying the home as your primary or secondary dwelling, or will you be renting it out? The cost/credit associated with the rate tends to be more expensive for mortgages secured by investment properties.
Interested Party Contributions
On a purchase transaction, you might ask the seller to pay for a portion of your closing costs or prepaid expenses. That is known as an Interested Party Contribution. You might choose a different rate for your transaction based on the amount of the cost or credit associated with that rate, in order to ensure you’re using the full available amount of interested party contributions on your transaction.
In summary, there are several factors that go into what rate you ultimately decide to lock in on your transaction. Our mortgage bankers are here for you, every step of the way. It’s our job to make sure you lock in your rate with a high confidence level, and a full understanding of how different parameters on your transaction can affect the rate on your loan.
Do you have questions about rates? Contact us or fill out the form below today! We are always here to help!