When home buyers secure a 15 or 30-year mortgage, they’ll typically have a permanent interest rate on the loan for the duration of the term. As a leading mortgage broker in Houston, professionals at Champions Mortgage often have clients ask them, “How are fixed mortgage rates determined?” The exact percentage depends on several factors explained in this guide.
The Benefits of a Fixed-Rate Home Loan
You don’t have to obtain a fixed-rate loan when you buy a house. Variable-rate mortgages are also available and allow the interest rate to change every few years. While these loans have their appeal, many home buyers prefer a fixed interest rate for optimum mortgage rate stability.
You’ll pay the same amount in interest every month for the duration of your loan period rather than facing potential increases over time. This helps you remain in control of your finances and is especially beneficial for those who purchase homes at a low interest rate.
Common Fixed Mortgage Rate Factors Lenders Consider
How are fixed mortgage rates determined? When determining mortgage rates, lenders have to consider several external components along with information regarding the borrower. Common factors affecting rates include:
- Economic factors like inflation, unemployment rates, and the stock market
- The borrower’s credit score
- The loan’s duration
- The size of the mortgage down payment
A struggling economy with high unemployment rates and a weak stock market can cause interest rates to decrease. You may also have a lower interest rate if you apply for a home loan with a solid credit score and a large down payment.
Three Tips for Securing a Lower Interest Rate
Ask an expert, “How are fixed mortgage rates determined?” and they’ll tell you that the economy and housing market play a key role. However, you may be able to secure a lower interest rate even if economic factors cause rate increases. Mortgage rate calculations often depend on your personal finances and how confident lenders feel in giving you a loan.
The following tips can help you earn a home loan with a reasonable fixed interest rate.
1. Build Good Credit
Lenders use an applicant’s credit score to gauge how reliable they are in making payments. You can build good credit by paying off credit card bills and not falling behind on other loans. High credit scores bode well for anyone seeking a mortgage.
2. Save for a Down Payment
Some home loans don’t require a high down payment; however, it’s wise to increase yours if you want a lower interest rate. Aim for a 20% down payment for the best results.
3. Compare Lenders
Connect with various lenders to see what type of interest rate they’d provide you. Comparing rates helps you find the lowest one available.
Speak With a Lending Specialist About the Fixed-Rate Loan Process
How are fixed mortgage rates determined? Is a fixed-rate or variable-rate mortgage better? For more help understanding fixed-rate mortgages, turn to the team at Champions Mortgage.
We’ll help you secure a home loan and address all of your concerns regarding the interest rate. Call (281) 727-2500 to speak with a member of our team.
Frequently Asked Questions
Do you still have questions about home loan interest determination? Get answers to some frequently asked questions below.
What Affects the Economic Impact on Rates?
Unemployment vs. job growth rates, stock market performance, inflation, and the current housing market affect mortgage interest rates.
How Do You Calculate a Monthly Mortgage Interest Payment?
To calculate your monthly interest payment, multiply your interest rate by your loan balance and then divide that figure by 12.
How Are Fixed Mortgage Rates Determined for a Borrower?
A borrower’s mortgage rate is determined partly by their credit score, their down payment, and their debt-to-income ratio.
