Most prospective homeowners want affordable loan payments that won’t strain their budgets. This goal is mainly shaped by the interest rates on conventional mortgage loans. There are a number of factors that affect how low or high they can be, and having a better idea of these will help you in the house-hunting process. Here are several common drivers of interest rates on home loans.

How Mortgage Loan Rates Are Influenced

1. Real Estate Market

Changes within the housing sector can have a direct impact on the rate you’ll pay on your conventional mortgage loan. If the demand for homes is high, it can create what’s called a seller’s market. This means interest rates may increase as a result of more people shopping for houses.

When fewer homes are up for sale and buyer demand is low, mortgage rates may trend downward. These patterns, along with whether more people are renting, will typically affect how lenders will set loan rates.

2. Credit Score

The higher your credit score, the lower the interest rate may be on your mortgage. Some lenders prefer to see scores in the 750 to 850 range. This means the borrower has a consistent track record of responsible debt management and on-time payments.

Borrowers with lower credit scores may receive a higher interest rate to guard against loan default. The good news is that applicants with less than stellar credit can take steps to improve by paying bills on time and not overextending on financial obligations. 

3. The Economy

When the nation’s economy is strong, it generally means more people are employed and consumers feel confident about spending. These positive growth indicators can translate into an increase in conventional mortgage loan applications. To handle the demand, some lenders may increase interest rates to balance out the amount they can lend to borrowers.

On the other hand, a weak economy hindered by high unemployment could reduce the demand for home loans. As a result, interest rates may be dropped to help encourage buyers to secure mortgages. 

Interest rates have a strong link to your home loan payments. CMG Financial in Chattanooga, TN, is here to take the mystery out of securing a conventional mortgage. You’ll work with an experienced and friendly loan officer who will listen to your unique housing and financial preferences. From first-time buyers to refinancing, the team offers a wide range of loan options. To learn more about selecting one to meet your budget and lifestyle, call (423) 991-0095. Visit them online for information about the full suite of available products and services.