The mortgage industry comes with a lot of fine details and mortgage interest rates are constantly changing. Homebuyers are always wondering if they are going to be locking their loan at the correct time. Before we dive into the current rates, it’s best to understand what determines them and the factors that will go into your interest rate.

Many factors are out of your control when it comes to your interest rate. It’s a myth that mortgage rates are controlled by the Federal Reserve. They have some influence, but interest rates actually fluctuate every day based on the state of the economy, unemployment rate, inflation, and market trends.

The overall state of the economy is one of the largest factors in the calculation of mortgage rates. If the economy is booming, then mortgage rates will usually rise. Currently, the economy is not doing great, and the unemployment rate is higher than usual due to COVID-19. As a result, rates are at an all-time low and current owners are taking advantage of refinancing.

While the interest rate you receive hinges on all the factors listed above, there are always actions you can take to get the best deal possible.

When purchasing or refinancing your home, there are many elements that you have full control over. The best place way to start the process is by getting pre-approved with a lender. There are tons of lenders to choose from and speaking with more than one is important. All lenders operate differently, and depending on their size and book of business, they can offer higher or lower interest rates.

In the long run, what truly matters is the potential borrower’s financial situation. Lenders will look at a borrower’s credit score, loan-to-value ratio, and loan term to determine what interest rate they are willing to offer you.

If you didn’t know, you are entitled to one free copy of your credit score every year! You should look at your numbers before you reach out to a lender to make sure they are up to date and have no errors. Credit score requirements are based on the loan program selected – and you won’t find lenders qualifying people with credit much lower than 600. But the best interest rates are given to those with a credit score in the 700s.

The loan-to-value ratio is important when buying and refinancing a home. Making a standard down payment of 20% (or having a loan-to-value ratio below 80%) will show the lender that you are less likely to miss payments or default on your mortgage. Since you are a lower risk, lenders can offer you more competitive interest rates.

Another important factor in finding your interest rate is the loan term, or how many years you plan to finance the home. Most conventional mortgages are 30-year terms but there is always the option to do 20, 15, or 10-year terms. The lower the term, the lower the interest rate you can get. You’ll be paying more in principal each month, so lenders can keep the rate low.

Right now, as of Jan. 2021, interest rates are at historic lows! Most 30-year fixed mortgages are closing with an interest rate below 3.5% and data predicts they should stay low for some time to come. The longer COVID-19 stays in America, the interest rates will remain low. According to Matthew Graham, the Chief Operating Officer of Mortgage News Daily, “The lowest conventional 30yr fixed mortgage rates would have a very hard time falling below 2.25% unless COVID immunity proves to be impossible. This isn’t a guess or a prediction, like most comments about financial market potentialities.

Since interest rates might not be the same as when this was originally published, double-check with your lender to see what the current rates are.

Remember that your financial situation will heavily influence your interest rate. Maintaining a good credit score, investing equity in your home, and showing a lender you are serious about owning a home will help you get the best interest rate possible.

If you have any questions or would like to learn more, please reach out to Neighborhood Loans today!



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