Home Mortgage Rate Factors

The amount of your loan may affect your interest rates due to the conforming loan limits established by Fannie Mae and Freddie Mac at the beginning of each year. If the amount financed exceeds the conforming loan limits that have been established for the year, interest rates can increase.

Shorter loans can save you thousands of dollars in interest payments over the life of the loan, but will raise the cost of your monthly payments. An adjustable rate mortgage may initially give you a lower rate than a fixed interest mortgage, but your payments are subject to increase as soon as the interest rate changes.

The size of your down payment can also affect interest rates. Large down payments, usually those that are greater than 20 percent, will get you the best available rates. Smaller down payments of 5 percent or less will bring higher rates as you are offering less equity as collateral. If you have money on-hand when you apply for your loan and would like to lower your interest rate, it is a good idea to put more money down. The concept is simple: In exchange for more money (collateral) upfront, lenders are willing to lower the interest rate they charge, since there is less risk involved for them. This subsequently reduces your monthly payments.

Closing costs are fees paid by the lender. If you don’t want to pay all of the closing costs, expect a higher rate which will pay the lender additional interest over the life of the loan.

Your credit quality and income level will also affect your interest rates because they determine your FICO Score, which is used when calculating loan terms. If you have excellent credit and your income surpasses the amount of debt you owe, you will receive lower rates. However, if your monthly income is insufficient to meet minimum debt obligations, you will receive a higher interest rate, even if you have a credit report.