- Credit history: the better your credit history, the lower the interest rate on a mortgage. This is why it is important to know your credit history before getting a mortgage. Learn More
- Size of mortgage: the bigger the mortgage compared to the cost of your home, the higher the interest rate. Typically a loan that is more than 80% of the cost of your home will cost you more. “Jumbo” loans also have higher rates. These are loans larger than the limits set by Fannie Mae and Freddie Mac, organizations that purchase mortgages from lenders. The current limit for a jumbo loan is $417,000.
- Years with a fixed interest rate: usually, the longer the interest rate is fixed the higher the interest rate will be. Learn More
- Documentation: the less information you give about yourself, the higher the interest rate you will pay. For example, “low-doc” (low documentation) loans require you to provide less information about your income and savings, but they typically cost more. Learn More
| Interest rates are usually the single biggest factor for most people when choosing a mortgage. The lower the interest rate, the better. Interest rates make a big difference in mortgage loan payments. For example, a $200,000 loan at a 7 percent interest rate for 30 years would require monthly payments of $1,331, while that same loan at 10 percent would require monthly payments of $1,755. Four things have the greatest impact on your interest rate for a mortgage: When deciding between different mortgages, make sure you understand how long the interest rate will stay the same. Adjustable rate mortgages (ARMs) and loans called “Option ARMs” can cost less in the short term, but the interest rate can increase making your payments grow. It often makes sense to have your interest rate be fixed for as long as you expect to own your home. See Types of Mortgages for more information. | |