Factors That Affect Phoenix Interest Rates

Factors That Affect Interest Rates

Many factors are considered when applying for a mortgage loan with the priority being the monthly payment amount. Several aspects contribute to this figure.

Interest rates can play a significant role in determining not just the payment but also the price you’ll pay over the life of the loan.

Have you ever wondered what affects the rates that banks charge? If so, you’re not alone.

Interest rates are determined on two levels. For the sake of this article, we’ll call them internal and external factors. These different items influence most banks and financial institutions everywhere.

External Factors Affecting Interest Rates

  • Supply and Demand – Mortgage rates, like most consumer products, are affected by supply and demand. When the economy is good, and people are buying homes, lenders charge higher prices. When the economy is slow, and homes aren’t selling, banks lower the rates to reel in customers.
  • The Fed – The Federal Reserve Board affects interest rates as a method of controlling economic growth. If the Fed is trying to curb inflation, they raise the prime rate, which slows down the economy and results in higher prices. When the Fed wants to motivate the economy, they lower their standards, which leads to banks charging lower amounts.
  • Bonds – Government-issued bonds can affect mortgage rates as well. Mortgage securities and bonds are in competition for similar investors, so how well the bonds do can change how much interest lenders want to charge customers.

Internal Factors Affecting Interest Rates

Banks lend money to make more money, and they make their money using the interest they collect. There are internal aspects that, while they affect rates, apply only to you.

  • Credit Worthiness – Good credit scores and a regular income are probably what matters most when applying for a loan. Generally, the higher your credit scores, the lower the interest rates you’ll be offered.
  • Loan Type – Rates can be affected by if whether the mortgage is a fixed-rate or an adjustable-rate mortgage.
  • Price of Home – Mortgage loans for small or large amounts may come with slightly higher rates.
  • Location – Rates may vary from state to state.
  • Loan Term – Loans for shorter terms generally have lower rates.
  • Down Payment – The more extensive the down payment, the lower the interest rates are going to be.

How Interest Rates Work

Many homeowners don’t realize that the interest makes up a large part of their monthly mortgage payment. Say a couple borrows $100,000 on a ten-year mortgage. When anticipating their payment amount, they often assume $100,000/120 months = $833. If they weren’t charged interest, that payment amount would be correct. The bank is charging 3% interest, and it’s charged on a monthly basis.

When you take 3% or .03 and divide it by 12, you get .0025. When you multiply $100,000 by that, you get $250, which is the amount of the interest payment. Add the $250 to the $833, and you have an approximate amount for the monthly loan payment. Taxes, insurance, and PMI if needed, are added to that amount.

Conclusion

Although some circumstances affecting overall interest rates are beyond your control, many aspects can be controlled by the borrower. If you have good credit, steady employment and are financially responsible, you’ve won half the battle. Taking advantage of the opportunity to obtain a free credit report can be beneficial.

Doing your research on current financial trends can also keep you aware of the housing market trends. If you’re looking for a mortgage loan give our office a call – our team will be happy to help you.

 

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Getting the Lowest Mortgage Interest Rate

Hey Friends!

Ever wondered just how to obtain the lowest mortgage interest rate? If so, you are in luck. Today I am going to share with you some simple steps that will allow you to do just that.

Never in all my years have I had a client come to me and tell me “Jimmy, please give me the highest mortgage interest rate that you have.”

I have however, (multiple times a day) had clients tell me “I want the best interest rate possible” …and you know something, there is absolutely nothing wrong with that.

The truth is that we should all want the lowest mortgage interest rate because it can literally save us tens of thousands of dollars in interest over the life of the loan.

Your Credit Score Affects Your Interest Rate

First off, let’s touch on credit scores. The single greatest factor to obtaining the lowest mortgage interest rate has to be credit score. Simply stated, the higher the credit score, the more competitive the interest rate.

The good news is that if your credit is less than perfect or could use improvement there are multiple ways to increase your score. Contact us at the contact info below for more details.

Higher Down Payment Can Mean a Lower Interest Rate

Now let’s move into down payments. Down payments can help you obtain more competitive interest rates when purchasing a home because the lender may view their investment to you (the money for your home) as less risky. So, it pays (if you can do it) to put money down – ideally 20% if possible.

Now, if you are nowhere close to having a 20% down payment, not to worry as there are multiple loan programs available on the market that will allow you to put as little as 5, 3.5, or even 0% down.

Paying Points for a Lower Rate

Lastly, another way to obtain the lowest interest rate when purchasing a home is paying points.

If you have never heard of the term “paying points” it’s simply this: paying money to the lender at closing to obtain a lower mortgage interest rate over the life of the mortgage loan. This will allow you to have a lower rate of interest over the life of the loan thus allowing you to save money long term.

For more strategies on how to obtain the lowest mortgage interest rate feel free to contact us today at 480-800-8387 or email me at Jimmy@PHXHomeLoan.com.

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