Significant Variables that Can Affect Your Home Loan Rate
There are a number of variables which have a good bearing on your home loan rate. Some of these factors are within your control, while others are not. While there is not much you can do about thos...
There are a number of variables which have a good bearing on your home loan rate. Some of these factors are within your control, while others are not. While there is not much you can do about those uncontrollable variables, there are measures that you can come up with in order to get a good home loan rate and a better mortgage deal.
Here are some of the factors which are worth looking into before applying for a home mortgage:
Debt to Income Ratio. When you apply for a loan, your monthly debt and income is compared and a figure called your debt to income ratio is calculated. The higher this ratio is the higher risk your mortgage is considered to be since you will already be allotting a good portion of your income in paying off debts. If this ratio is high, expect your home loan rate to be high as well.
Credit and Payment History. Few people consider how making mortgage and rent payments on time can create a good impression to lenders. Paying your dues on credit cards, bills and car payments late even just once can affect your rate and your loan terms.
Your Property Type. The kind of property you are loaning against will affect the type of loan you can be entitled to. Common types of properties include single family, multi family homes, condominiums, and so on. Home loan rate for single family homes, for example are typically lower. The less risky your home is, the better you can expect your rate to be.
Loan Amount vis-à-vis Property Value. There is such a thing as the loan to value (or LTV) ratio wherein your loan amount is compared with the value of your property. The higher this ratio is, the higher risk your mortgage is, and your home loan rate goes along with it.
Loan Amount and Duration. Note that the market for higher-priced properties are less stable than average ones, so high loan amounts usually entail higher interest rates to compensate for the added risk. The same goes for jumbo loan amounts wherein rates are usually set higher. On the other hand, shorter loan terms are usually given for lower interest rates than longer term ones.
Closing Costs. Lenders usually give slightly higher rates for those who are not willing to pay for the entire closing costs. They do this to compensate for the closing costs they need you to pay for them. In other words, it's either you pay now or you pay later on.
Your Mortgage Down payment and Points. A down payment of at least 20% will get you the best deal in terms of better rate. In addition, during the course of the mortgage, you are free to pay your principal and lower your mortgage payments by paying points to lower your mortgage rates. A point usually corresponds to a 1% of your total home loan amount. Paying points will reduce your monthly home loan rate and the rate over the entire life of the loan.
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