Today’s Mortgage Rates

How Do Mortgage Rates Work?

When buying a home, mortgage rates can be one of the most important factors when it comes to affordability. It’s essential to know how mortgage rates work and how your interest rate is determined. When you understand what does and doesn’t influence rates, you can make better decisions when selecting a home loan, locking in your rate, and getting the lowest possible monthly mortgage payment.

How Do Mortgage Interest Rates Change?

Many borrowers think that mortgage rates mirror the current Federal Reserve rate. It’s a misconception that the minute the Fed lowers or raises rates, mortgage interest rates will immediately reflect the change.

Although the Federal Reserve influences mortgage rates, it’s not the only influence. The Fed doesn’t set mortgage rates, but it indirectly affects them. That’s also true for other factors like the condition of the housing and bond markets, supply and demand, and inflation. That’s why it’s hard, if not impossible, to predict what rates will do.

What Determines My Mortgage Interest Rate?

Many factors influence the mortgage rate you’ll receive. These include:

The Lender
Since Homestead is a “mortgage lender,” we loan our own money. So, often we have lower rates.

Credit Scores
The higher the primary borrower’s score is, the lower the interest the lender will offer.

Property Location
Various locations can have slightly different rates. For example, California and New Jersey rates are higher, and Idaho and Ohio have lower rates.

Loan Amount
Lenders may charge higher interest on very small loans (for example, $50k) or larger loans (above conventional limits).

Home Equity
If you’re refinancing, the amount of equity you retain can make a difference in your interest rate.

Down Payment
Putting more down may lower your rate – it depends on what type of loan you get.

Loan Term
Shorter-term loans have less risk, so you will get a lower interest rate. This means you will pay less interest for the life of the loan.

Rate Type
Interest rates come as fixed or adjustable. Often adjustable rates have a lower intro rate but can increase over time. That’s compared to a fixed rate that stays the same for the life of the loan.

Loan Type
Government loans generally have lower rates than conventional loans. But factor in the mortgage insurance premium if you’re looking at an FHA loan.

Don't Focus Only on the Rates

When shopping with multiple lenders, consider the total cost of the loan, not just the interest rate. Closing costs run between 2% to 5% of your loan. They are divided into three basic parts.

1. Lender Fees – this is what you want to compare. These fees can be called by different names, but they usually include origination fees, discount points (to buy down the rate), underwriter, and processing fees.
2. Third-Party Fees – these are fees that the lender has nothing to do with and doesn’t control. They include title fees such as title search and title insurance. These should be pretty consistent from lender to lender.
3. Prepaid items – these can include your property taxes and homeowners’ insurance. Just like the third-party fees, the lender doesn’t control these costs. These should be consistent lender to lender.

Service is Just as Important

Finally, let’s talk about service. That includes having a smooth loan process and making sure your loan closes on time. Saving a 1/4% on the rate with a lender who doesn’t close on time is a moot point when the deal falls out of escrow.

With Homestead, since we’re an in-house lender, we do everything from start to finish “in-house.” We have our own processors and underwriters. We make the final decision, and we can close a purchase loan in 14 days, and a refinance in 30.

Contact us today and get the best mortgage loan with incredible service.