If you are hoping to settle your family into a new home this year, you’ve probably already been monitoring interest rates, as you get your financial house in order. As you do so, keep in mind that a number of factors will affect the rate you can expect to get on your new mortgage, some of which you may be able to impact and some you will simply need to deal with as you go forward with your new home purchase.
Mortgage interest rates can fluctuate daily, depending on domestic and international economic factors. The LoanLove site provides you with the current rates, as well as recent historic rates, so that you can monitor trends.
It’s important to keep in mind, however, that even the most experienced forecaster cannot say with 100 percent accuracy what interest rates will do this year. In fact, many experts predicted rates would begin a slow but steady climb upward at a strong pace than the slight increases seen thus far.
As you review other financial parameters, don’t forget to consider how the size of your down payment could affect your loan. The ability to put more money into your home purchase upfront can open the door to better financing than you might otherwise be able to obtain.
If you are serious about home ownership, you have probably been putting money aside or perhaps you’ve recently come into a sum of money to put down toward a new home. In addition to what you’ve saved, however, consider whether a parent or other close relative may be able to contribute.
You may also want to look into the potential of taking out a loan against your 401K or pension plan to increase the down payment you have available for your home purchase. This option has become more and more popular as zero down payment mortgages became few and far between.
If you do go the route of your 401K, there are several advantages. Your credit score is not affected and you pay interest on the loan to yourself. In addition, the loan is not considered a part of your debt.
However, be careful not to default. If you do not pay the loan back, the government will consider it taxable income.
The impact of your credit score on your home loan is fairly straightforward: the better your score, the better rate you will receive. Typically, borrowers with credit scores of 740 and above can qualify for the best rates from mortgage lenders. Those with credit scores below 620 may find it extremely difficult to quality in today’s more-restrictive lending environment.
To understand just how your score can impact a loan, consider that the differences in monthly payments for someone with the highest possible credit score versus someone with the lowest acceptable score is nearly $300. Now take that $300 per month over a 30-year mortgage and you will find that it adds up to a difference of more than $100,000.
To best illustrate how different criteria impact your loan, calculate your payments under several scenarios using the current interest rate:
Let’s consider a $250,000 house—your dream home. If you could put 3 percent down, you would need to finance $242,500. Based on current interest rates of 4.26 percent and a 30-year mortgage, your monthly payment would be $1,228.71.
Taking that same house, let’s say you put 10 percent down. Now you are looking to finance $247,500 with a 30-year mortgage. Using the same interest rate, your monthly payment drops to $1194.37. It may seem like a few dollars a month is no big deal, but consider taking those few dollars a month over the lifetime of your loan and you find you are sav$12,362
There are a number of factors that will determine how favorable of an interest rate you are able to obtain on your mortgage. While you cannot control all of the criteria that your lender will consider, understanding the various contributing factors can make the loan process less of a mystery.