How Mortgage Rates Are Calculated

Mortgage rates are an essential factor in determining if you can afford to buy a home. They are calculated based on various factors, such as your credit score, income and debt load, down payment amount and loan type.

To get the best mortgage rate possible, it’s essential to compare lenders’ offers. Large banks, credit unions and online lenders are typically your best bets for finding this information; making sure you shop around at least three different lenders ensures you find the most competitive rate available.

Bankrate’s mortgage rates tool helps you locate the lowest available rate from several lenders in your area, so that you can make an informed decision about which lender to work with. We recommend speaking with a mortgage specialist for further discussion regarding your individual requirements.

A good credit score can help you secure a low mortgage rate and lower monthly payments, since the lender assumes less risk when issuing you the loan. Therefore, it’s essential that you make all of your payments on time in order to maintain good credit history.

Other factors that impact your rate include the strength of the local economy and larger economic trends like unemployment, inflation and interest rates. A healthy economy will attract more home buyers, stimulating demand and raising mortgage rates accordingly.

If you are considering buying a home, it is wise to start saving for a down payment right away. A substantial down payment will increase your chances of receiving an attractive mortgage rate and help avoid having to pay private mortgage insurance (PMI).

Your down payment should equal at least 20% of the purchase price of your home. The higher your down payment, the lower your monthly mortgage payments will be.

Another way to reduce your mortgage expenses is by taking advantage of government programs like the Federal Housing Administration (FHA) and Department of Veterans Affairs (VA). These loans allow you to borrow up to 80% of a home’s value through these agencies.

These programs can save you thousands of dollars in interest payments over the life of your mortgage.

The mortgage market is highly cyclical, meaning prices and terms of loans are constantly shifting. A good rule of thumb is to shop around at least once a month for the best mortgage rates.

Many lenders offer rate float-down options that permit you to switch to a lower mortgage rate if it drops below a certain threshold. However, these aren’t offered automatically and there’s no assurance that they will be available; so it’s essential that you inquire if your lender provides them before signing on the dotted line.

With a fixed-rate mortgage, you can lock in your interest rate at the start of the loan term and protect against any increases. Re-locking can be done after the initial lock period ends but at an increased cost; however, this option should be considered only when absolutely necessary.

Mortgages are an excellent way to purchase the home you’ve always desired without forking over all of the cash upfront. Furthermore, they allow you to build equity in your property which could eventually translate into a profit in the future.