Most homebuyers don’t have the funds to purchase a property upfront. However, if you’re tired of renting, you can apply for a mortgage loan, which you’ll use to buy the house and pay off over time. Like other types of credit, your debt will come with an interest rate. If you’re hoping to get the lowest percentage possible, consult the following guide and see what might affect your rate before filling out your application.

How Do Mortgage Interest Rates Work?

Interest rates are the primary motivation for mortgage lenders. Instead of simply lending out money and waiting for that same amount to come back, they charge interest, an added percentage on top of how much you borrowed.

Lenders make a slow but steady profit over time. If your interest rate is 5%, and you borrow $200,000, you would ultimately have to pay back $210,000. 

What Factors Affect Them?

Not every borrower’s interest rate will be the same. The most influential factor is the applicant’s credit score. If you have a better score, you’ll seem like less of a liability, and your interest rate will be lower. Also, if you put more money down on the house upfront, such as over 20% of its total value, you can expect a lower interest rate, as your ability to save up for a high down payment will speak to your creditworthiness.

Where you live may also affect your interest rate. In 2016, Texas had an average interest rate of 9.75%, while many states fell between 1% and 3%. Interest rates also fluctuate between urban and rural areas.

The loan itself may play a role in the interest rate. For example, there are many different lenders to choose from, and they all offer various loan terms, or how long you have to pay them back. You can also choose between a fixed and adjustable rate. The latter will fluctuate based on the housing market, which may be good or bad, depending on the economy.

If you’re interested in learning more about mortgage loans, let loanDepot - Deuane Woodard, Loan Consultant be your guide. He helps hopeful homeowners throughout the North Richland Hills, TX, area. He has over 30 years of experience, so you can trust him to provide calculated insight into the process. To learn more about his services, visit the website. Call (817) 875-6043 to schedule an appointment.

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