Major Interest Rate Factors
The interest rate you receive on a mortgage is a major defining factor in the cost of a loan, and there are three basic issues that determine this figure. Anyone applying for a mortgage should be aware of these factors in order to understand why and how they qualify for particular interest rates. Not only will this help an applicant to better understand their costs, it will most likely save some time and frustration along the way.
The prime interest is the foundation of all other interest rate determinations, and it is directly effected by the Federal Reserve "Discount Interest Rate". This is the interest rate that the Federal Reserve Bank charges eligible institutions (such as banks) for borrowing money in the short term, and it is determined by the boards of directors of the Federal Reserve Banks. The individual mortgage seeker has no control over this factor, but it will fluctuate according to the economy and other issues.
An individual's credit report, or credit history, also greatly affects their qualified interest rate. The credit bureau, as well as other consumer reporting agencies, keeps a record of bill payment history, arrests, bankruptcies, lawsuits, etc. Traditionally, this history is expressed as a number, or FICO score. This single number helps lenders and other institutions to quickly assess the credibility and responsibility of an individual to pay their debts. Credit scores greatly impact the interest rate charged for a mortgage or any other loan, but it can also be highly controlled by the individual. By making payments on time and keeping a responsible credit history, the interest rate will be extremely close to the prime rate. However, those who are a higher risk (with lower scores) receive higher interest rates accordingly. The more risk an institution takes with mortgage, the more expensive that mortgage will be.
Individual lenders and banking institutions compete to provide competitive interest rates while protecting their investments. All lenders need to make some profit, while offering reasonable rates to mortgage applicants. This natural competitive market is the third factor in determining an interest rate. Though it is also difficult to control, it certainly provides a dynamic and competitive atmosphere for finding the right mortgage.
Realizing the impact of these factors on interest rates will help you determine what a decent interest rate would be for your situation and possibly provide a strategy for receiving lower interest rates, the best strategy being a great credit score.
About the Author: Peter Dellane is the President of Ability Mortgage Group, LLC, A leading Maryland Mortgage company offering low costs zero point mortgages. For more information on Mortgage Maryland please visit www.marylandsmortgage.com.
The prime interest is the foundation of all other interest rate determinations, and it is directly effected by the Federal Reserve "Discount Interest Rate". This is the interest rate that the Federal Reserve Bank charges eligible institutions (such as banks) for borrowing money in the short term, and it is determined by the boards of directors of the Federal Reserve Banks. The individual mortgage seeker has no control over this factor, but it will fluctuate according to the economy and other issues.
An individual's credit report, or credit history, also greatly affects their qualified interest rate. The credit bureau, as well as other consumer reporting agencies, keeps a record of bill payment history, arrests, bankruptcies, lawsuits, etc. Traditionally, this history is expressed as a number, or FICO score. This single number helps lenders and other institutions to quickly assess the credibility and responsibility of an individual to pay their debts. Credit scores greatly impact the interest rate charged for a mortgage or any other loan, but it can also be highly controlled by the individual. By making payments on time and keeping a responsible credit history, the interest rate will be extremely close to the prime rate. However, those who are a higher risk (with lower scores) receive higher interest rates accordingly. The more risk an institution takes with mortgage, the more expensive that mortgage will be.
Individual lenders and banking institutions compete to provide competitive interest rates while protecting their investments. All lenders need to make some profit, while offering reasonable rates to mortgage applicants. This natural competitive market is the third factor in determining an interest rate. Though it is also difficult to control, it certainly provides a dynamic and competitive atmosphere for finding the right mortgage.
Realizing the impact of these factors on interest rates will help you determine what a decent interest rate would be for your situation and possibly provide a strategy for receiving lower interest rates, the best strategy being a great credit score.
About the Author: Peter Dellane is the President of Ability Mortgage Group, LLC, A leading Maryland Mortgage company offering low costs zero point mortgages. For more information on Mortgage Maryland please visit www.marylandsmortgage.com.
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