What Are Mortgage Rates?
Mortgage rates are usually a fixed percentage, amount, or figure determined by a lender or bank. While most rates are fixed, some can be variables or fluctuate with a benchmark interest rate.
When looking to determine a mortgage rate, there are two factors that may influence it. Those are an e-comprehensive credit profile, and current housing market rates.
Depending on how the housing market is doing, the lender may assess a different rate. It’s important that you take these considerations into account as a new homebuyer.
What Affects Mortgage Rates?
Prime Rate
A prime rate represents the average rate that banks are offering for credit. Banks reserve prime rates for highly qualified borrowers. They follow the Federal Reserve’s funds rate at a percentage of adjustment of an extra 3%. In essence: whatever the Federal Reserve’s funds rates are, you can expect to pay 3% higher.
Treasury Bond’s 10-Year Yield
The 10-year Treasury yield is the yield that the government pays investors that purchase the specific security. Purchase of the 10-year note is essentially a loan made to the U.S. government. The 10-year yield is used as a proxy for mortgage rates. It’s also seen as an indicator of broader investor confidence in the economy. A rising yield indicates falling demand for Treasury bonds, which means investors prefer higher-risk, higher-reward investments.
How Is a Mortgage Rate Determined?
A borrower’s credit score is a primary component in assessing the rate of a mortgage loan and its total amount. Higher scores yield lower interest rates because the risk is lower. The higher the risk, the higher the rate. A high rate ensures the lender recoups the initial loan amount faster in case of default.
A customer’s credit history and how they prioritize past obligations can help determine the chance of paying off a mortgage. Therefore, all consumers and borrowers alike should seek the lowest rate possible when their credit score has reached a favorable range.
Ways to Help Your Credit and Chances of a Low Mortgage Rate
