5 Key Factors That Affect Your Mortgage Rate

5 Key Factors That Affect Your Mortgage RateMany first time home buyers often wonder what factors determine their mortgage rate. Is it their credit score? Is it the type of loan chosen? Is it the size of the loan?

The truth is, there are many factors at play. Mortgage interest rates are not standardized across the board, so they vary from lender to lender and from borrower to borrower.

Here are 5 common factors that determine or affect your mortgage interest rate:

1.    Default Risk

Risk is a key consideration when determining mortgage interest rates. Banks and other lenders are in a risky business because there is always a chance of a borrower defaulting on their loan repayments. This is known as default risk.

Banks and lenders therefore charge riskier borrowers higher interest rates to discourage them from borrowing, as well as to be able to average their returns between risky and non-risky borrowers. Risk is one of the prime factors that influence your mortgage rate.

2.    Credit Score

Perhaps you are wondering how banks and other lenders determine if you are a risky or non-risky borrower. There are many tools they can use, but your credit score plays a big role. You credit score is based on the borrowing history in your credit report, which summarizes all details about your credit card balances and timely bill repayment.

If you pay your bills on time and sustain relatively low credit scores, your credit score stays high and lenders view you as a low-risk borrower. Consequently, your mortgage interest rates tend to be lower than a person with a low credit score.

3.    Type of Property You Are Purchasing

Some properties have a higher risk of default compared to others. This is determined by analyzing the historical likelihood of default on different properties; lenders use this analysis as the reason to charge higher mortgage interest rates on riskier ones.

For example, vacation homes tend to have a higher rate of default compared to single-family homes and lenders charge higher rates for such homes.

4.    Size of Down Payment

The amount of money you pay upfront on the mortgage also influences its interest rate. A large down payment gives you a lower LTV ratio (loan-to-value), which also decreases the level of risk borne by a lender. A small down payment, on the other hand, gives you a high LTV ratio and thus a higher mortgage interest rate.

5.    Loan Amount

A large loan bears a higher risk than a smaller one simply because there is more money at risk. Most lenders therefore charge higher interest rates on large property loans as compared to smaller ones.

All in all, different lenders offer different rates depending on their style of operation, appetite for risk, or competitiveness in the market. It’s important to search intensively for offers from different lenders for the best mortgage rate.

Contact us to help you find out more about mortgage rates and what that means for your next home purchase.

 

What’s Ahead For Mortgage Rates This Week – April 30th, 2018

What's ahead for mortgage rates april 30 2018Last week’s economic reports included readings from Case-Shiller Home Price Indices, new and existing home sales and weekly readings on mortgage rates and first-time jobless claims.

Case-Shiller: Home Prices Rise to Near Four-Year High

February home prices rose 6.30 percent year-over-year and 0.50 percent month-to-month. Home prices rose just shy of a record set in 2014. The 20-City Home Price Index reported home prices were 6.80 percent higher year-over-year and rose 0.80 percent month-to-month in February. The year-over-year reading surpassed the peak reading in 2006. Home prices accelerated in contrast to analyst expectations that they nay slow as buyers deal with a short supply of homes for sale.

Cities with the three highest readings in year-over-year home price growth were Seattle, Washington with 12.70 percent growth, Las Vegas, Nevada home prices rose 11.60 percent, and San Francisco, California home prices rose by 10.10 percent according to Case-Shiller’s 20-City Home Price Index for February.

Severe shortages of homes and high demand in the west and in areas impacted by the housing bubble burst are driving the rapid rise of home prices; while it appears that homebuyers may be sidelined by high home prices, increasing home sales suggest that buyers may be buying before higher prices cut them out of the market.

Sales of New and Existing Homes Surpass Expectations in March

Sales of pre-owned homes rose to 5.60 million sales on a seasonally-adjusted year-over-year basis. Analysts expected a reading of 5.52 million sales based on February’s reading of5.54 million pre-owned homes sold. Sales of new homes also exceeded expectations with a sales rate 0f 694,000 sales on a seasonally-adjusted annual basis. Analysts expected a reading of 634,000 new hone sales. February’s reading was 667,000 new home sales. As with the boost in sales of pre-owned homes, analysts said that buyers are anxious to buy before they’re priced out of the market or cannot qualify for mortgage loans.

Mortgage Rates Rise, New Jobless Claims Fall

Freddie Mac reported higher average mortgage rates for the third consecutive week. Rates for a 30-year fixed rate mortgage averaged 4.58 percent and were 11 basis points higher. The average rate for a 15-year fixed rate mortgage was 8 basis points higher at 4.02 percent; The average rate for a 5/1 adjustable rate mortgage was seven basis points higher at 3.74 percent. Rising Treasury yields were driven by higher commodity prices drove mortgage rates higher.

Economic indicators have steadily strengthened, which traditionally boosts home prices. While analysts have shown concerns over rapidly rising home prices and mortgage rates, the Mortgage Bankers Association reported mortgage applications were 11 percent higher year-over-year.

New jobless claims fell to 209,000 first-time claims filed as compared to expectations of 230,000 new claims, and the prior week’s reading of 233,000 new claims filed. Lower jobless claims indicate fewer layoffs and strengthening labor markets.

What’s Ahead

This week’s economic releases include readings on inflation, job growth, and national unemployment. Weekly readings on mortgage rates and new jobless claims will also be released.

What’s Ahead For Mortgage Rates This Week – April 2nd, 2018

What's Ahead For Mortgage Rates This Week April 2nd, 2018 Last week’s economic releases included readings from Case-Shiller, pending home sales, and consumer sentiment. Weekly reports on mortgage rates and first-time jobless claims were also released.

Case-Schiller: Home Prices Continue to Rise

According to Case-Shiller Home Price Index reports for January, U.S. home prices continued to rise at a rapid pace with the national home price index rising at a seasonally-adjusted annual rate of 6.20 percent. Case-Shiller’s 20-City Home Price Index rose by 6.40 percent year-over-year. Seattle, Washington held the top spot with year-over-year home price growth of 12.90 percent.

Las Vegas, Nevada reported year-over-year home price growth of 11.20 percent. After a lull in home price growth, San Francisco, California home prices grew by 10.20 percent year-over-year. The only city to lose ground in the 20-City Index was Washington, D.C., which posted a drop of 0.40 percent in January, but posted a year-over-year gain of 2.40 percent.

David M. Blitzer, Chairman of the Dow Jones S&P Indices Committee, said that rapidly rising home prices were all about supply and demand. Growing demand and slim supplies of homes for sale were again cited as the primary reason for rapidly rising home prices. Faced with limited choices and rising mortgage rates, more buyers could be sidelined until demand subsides or inventories of available homes increase.

Mortgage Rates, New Jobless Claims Fall

Freddie Mac reported slight drops in average mortgage rates last week. 30-year mortgage rates dropped by one basis point to 4.44 percent; 15-year mortgage rates averaged one basis point lower at 3.90 percent, and rates for 5/1 adjustable rate mortgages also dropped by one basis point to 3.66 percent. Discount points averaged 0.50 percent for fixed rate mortgages and 0.40 percent for 5/1 adjustable rate mortgages.

First-time jobless claims fell last week with 215,000 new claims filed. Analysts expected 230,000 new claims to be filed based on the prior week’s reading of 227,000 new claims filed.

Consumer Sentiment dipped lower in March with an index reading of 101.4, which fell below expectations of 102.0 and February’s index reading of 102.0.

Whats Ahead

This week’s scheduled economic reports include readings on construction spending, and labor-related readings on ADP payrolls, Non-Farm payrolls and the national unemployment rate. Weekly readings on mortgage rates and new jobless claims will also be released.

What’s Ahead For Mortgage Rates This Week – November 6, 2017

Last week’s economic news included readings on Case-Shiller home prices, construction spending, and consumer sentiment. Labor sector readings on private and public employment and the national unemployment rate were also released. Weekly readings on mortgage rates and new jobless claims were also released.

CaseShiller: Home Price Growth Approaches Record

Home price growth approached a record set in 2006 in August, but analysts said that affordability and the shortage of homes for sale could signal slower growth ahead. David M. Blitzer, Chairman of the S&P Index Committee, said that while home prices appeared to be “unstoppable,” signs of slowing momentum could signal the end of rapid home price growth.

Case-Shiller’s national home price index reported a seasonally-adjusted annual growth rate of 6.10 percent as compared to July’s corresponding reading of 5.90 percent. The 20-City Index reading was 1.80 percent short of the record set in 2006. Seattle, Washington led home price growth with a reading of 13.20 percent year-over-year. Las Vegas, Nevada held second place with a seasonally-adjusted annual growth rate of 8.60 percent and San Diego, California held third place in the 20-City Index with a reading of 7.80 percent.

While the West continued to post highest home price gains, some home price gains are leveling out. San Francisco, California, which posted double digit home price growth in recent years, posted 6.10 percent growth year-over-year and a negative reading of -0.10 percent in August as compared to July.

September construction spending rose due to public works projects and housing construction. This was good news as a shortage of available homes has daunted real estate sales in past months. Building more homes is the only solution to the ongoing shortage of homes for sale. Construction spending 4ose0.30 percent in September as compared to an expected reading of no change, which was based on August’s reading of 0.10 percent.

Mortgage Rates Little Changed, New Jobless Claims Fall

Freddie Mac reported no change in the average rate of 3.94 percent. Average rates for a 15-year mortgage and a 5/1 adjustable rate mortgage were each two basis points higher at 3.27 percent and 3.23 percent respectively. Average discount points were 0.50 percent for all three mortgage types. The President is expected to announce the appointment of a new Federal Reserve Chair this week, which could impact interest rates either way.

First-time jobless claims were lower last week with 229,000 claims filed as compared to expectations of 235,000 new claims filed and the prior week’s reading of 234,000 new jobless claims. Private-sector employment grew by 235,000 jobs in October as compared to September’s reading of 110,000 new private-sector jobs.

The Commerce Department reported 261,000 new public and private-sector jobs in October. Analysts expected 325,000 new jobs, but September’s reading was adjusted to 18,000 new public and private sector jobs added. The national unemployment rate dipped to 4.10 percent as compared to an expected reading of 4.10 percent and September’s reading of 4.20 percent.

Consumer confidence grew to an index reading of 125.9 in October as compared to analysts’ expected reading of 121.3 and the prior month’s reading of 119.5.

What’s Ahead For Mortgage Rates This Week – October 16, 2017

Last week’s economic reports included minutes of the Fed’s Federal Open Market Committee meeting held in September along with releases on inflation and weekly reports on mortgage rates and new jobless claims.

FOMC Meeting Minutes Indicate December Rate Hike is No Sure Thing

According to minutes for the September 19 and 20 meeting of the Federal Reserve’s Federal Open Market Committee, the Fed has adopted a wait-and-see posture concerning a possible rate hike at December’s meeting. Although analysts previously indicated that additional rate hikes were expected by the end of 2017, the Fed chose not to raise the federal funds rate in September.

Hurricanes Harvey and Irma Impact Industrial Production

Hurricane damage was expected to slow industrial production in the short term. The impact of hurricane damage in Texas and Fl0rida are expected to be short term, but the full impact of the two hurricanes had not been fully assessed at the time of the FOMC meeting.

Labor and real GDP readings rose, but the year-over-year reading for inflation was lower than the two percent inflation rate set by the Fed as a positive economic indicator. The Fed’s dual mandate also includes achieving maximum employment as measured by the national unemployment rate. The Fed originally set a goal of 6.50 percent unemployment in the immediate aftermath of the recession, but the national unemployment rate has exceeded expectations and currently hovers near 4.30 percent. Strong labor markets help propel renters into housing markets as they have more confidence in maintaining long-term employment.

Mortgage Rates, New Jobless Claims

Mortgage rates rose last week. Freddie Mac reported an average rate of 3.91 percent, which was six basis points higher than for the previous week. Rates for a fifteen-year fixed rate mortgage also rose by six basis points to 3.21 percent. The average rate for a 5/1 adjustable rate mortgage dipped two basis points to 3.16 percent. Discount points averaged 0.50 percent for fixed rates and 0.40 percent for a 5/1 adjustable rate mortgage.

New jobless claims fell to 243,000 as compared to expectations of 258,000 claims and the prior week’s reading of 260,000 first-time jobless claims filed.

Whats Ahead

This week’s scheduled economic readings include the National Association of Home Builders Housing Market Index, Commerce Department reports on housing starts and building permits issued. Weekly readings on mortgage rates and new unemployment claims will also be released.

What’s Ahead For Mortgage Rates This Week – August 28, 2017

Last week’s economic news included readings on sales of new and previously-owned homes, Weekly readings on mortgage rates and new jobless claims were also released, along with coverage of Fed Chair Janet Yellen’s remarks at a conference in Jackson Hole, Wyoming.

Home Sales Lower in July

According to the Commerce Department, new home sales fell to a seven-month low in July; 571,000 new homes were sold on a seasonally-adjusted annual basis in July.  This reading fell short of the expected sales rate of 608,000 new home sales and June’s reading of 630,000 sales. This was unwelcome news for home builders, who have been under pressure to build more homes.  pronounced shortage of available homes coupled with high buyer demand has pressured builders to increase their rate of housing starts. A sudden dip in new home sales could impact builders’ production rates if slow sales persist.

Buyer demand may be waning as home prices have continued to climb. July’s national average home price rose to $313700, which was 6.30 percent year over year. The National Association of Realtors® said the current inventory of available homes rose to 5.70 months. This was the highest reading in highest reading in several months. Real estate pros consider a six-month supply of homes for sale an average reading. Regardless of record high demand for homes and low inventories, rapidly rising home prices reduce the pool of potential buyers due to affordability.

Sales of previously owned homes also fell in July. The National Association of Realtors® reported that pre-owned homes sold at a seasonally-adjusted annual rate of 5.44 million sales. Analysts predicted a rate of 5.50 million sales based on June’s reading of 5.51 million sales.

Mortgage Rates, New Jobless Claims

Freddie Mac reported mixed mortgage rates results, but mortgage types surveyed were little changed. The average rate for a 30-year fixed rate mortgage fell three basis points to 3.86 percent; the average rate for a 15-year mortgage was unchanged at 3.16 percent. Rates for 5/1 adjustable rate mortgage averaged 3.17 percent. Discount points averaged 0.50 percent for all three mortgage types.

First-time jobless claims rose to 234,000, which fell short of the expected reading of 238,000 new claims and the prior week’s reading of 232,000 new claims.

Fed Chair Defends DoddFrank Act

Fed Chair Janet Yellen defended Dodd-Frank mortgage legislation passed after the financial crisis. The legislation established credit standards for mortgage lenders to eliminate irresponsible lending practices. Speaking at the Federal Reserve’s annual retreat in Jackson Hole, Wyoming, Chair Yellen’s comments responded to recent indications by the administration and banking officials that the Dodd-Frank Act should be repealed.

Whats Ahead

This week’s economic reports include readings from Case-Shiller on home prices. Pending home sales, construction spending and inflation reports will be released in addition to weekly readings on mortgage rates and new jobless claims. Several labor reports will also be released including ADP Payrolls, Non-Farm Payrolls, and the national unemployment rate will also be released.

What’s Ahead For Mortgage Rates This Week – August 14, 2017

Job Openings, New Jobless Claims Rise

Job openings rose in June to 6.20 million as compared to May’s reading of 5.70 million job openings. Analysts said that increasing job vacancies show that employers are unable to find qualified workers. Business services, construction, health care and professional job sectors had the most job openings. Slow wage growth could be contributing to widespread job openings. Average wage growth has been running at approximately 2.50 percent, which is lower than the average of 3.50 to 4.00 percent typically seen during economic expansion.

First-time jobless claims rose to 244,000 as compared to expectations of 242,000 new claims and the prior week’s reading of 242,000 new jobless claims.

Mortgage Rates Lower

Freddie Mac reported lower mortgage rates last week. The average rate for a 30-year fixed rate mortgage was three basis points lower at 3.90 percent. The average rate for a 15-year fixed rate mortgage was unchanged at 3.18 percent. The average rate for a 5/1 adjustable rate mortgage was one basis point lower at 3.14 percent.

Inflation rose in July by 0.10 percent against an expected increase of 0.20 percent; June’s reading was unchanged. Core inflation, which excludes volatile food and energy sectors, rose by 0.10 percent against expectations of 0.20 percent and 0.10 percent growth in June.

What’s Ahead

This week’s scheduled economic reports include the NAHB Housing Market Index, Commerce Department readings on housing starts and building permits issued and the University of Michigan’s Consumer Sentiment Index, Weekly reports on mortgage rates and new jobless claims will also be released.

What’s Ahead For Mortgage Rates This Week – August 7, 2017

Last week’s economic news included readings on pending home sales, construction spending. Several reports related to employment were also posted along with weekly readings on mortgage rates and new jobless claims.

Pending Home Sales Rise as Construction Spending Lags

Pending home sales rose by 1.50 percent to an index reading of 110.2 in June according to the National Association of Realtors®. Sales of homes under contract that have not yet closed regained positive territory after May’s negative reading of -0.70 percent. Pending sales were in negative territory for the past three months.

Regional results for pending sales were mixed. The Northeast posted a gain of 0.70 percent, which was 3.40 percent higher than in June 2016. The Midwest region lost ground with a reading of -0.50 percent in June, but pending sales were 3.40 percent higher year-over-year. Pending home sales increased by 2.10 percent in the Southern region, which was 2.60 percent higher year-over-year. Although the Western region posted a month-to-month pending home sales gain of 2.90 percent for June, pending home sales were 1.10 percent lower year-over-year.

The west has enjoyed a run on rapid home price growth due to slim supplies of homes for sale and high demand for homes in popular metro areas. June’s lower year-over-year reading could signal that home prices have maxed out and low inventory of homes isn’t providing potential buyers with enough choices given higher home prices.

Construction Spending Slows, Mortgage Rates Hold Steady

Real estate pros again cited the shortage of available homes as driving high home prices and creating high competition for homes on the market. These conditions can make homeownership difficult for first-time and moderate- income buyers. Despite pressure on home builders to increase construction, the Commerce Department reported lower construction spending in June. Spending was lower by -1.10 percent against expectations of 0.40 percent growth based on May’s flat reading.

Mortgage rates were little changed last week; the average rate for a 30-year fixed rate mortgage rose one basis point to 3.93 percent. 15-year fixed mortgage rates were two basis points lower at 3.18 percent. Rates for a 5/1 adjustable rate mortgages were three basis points lower at 3.15 percent. Discount points averaged 0.50 percent for all three mortgage types.

Weekly Jobless Claims, Unemployment Rate Fall

New jobless claims fell to 20,000 new claims as compared to expectations of 244,000 new claims and the prior week’s reading of 245,000 initial jobless claims filed. Readings for Non-Farm Payrolls were lower at 209,000 private and public-sector jobs created.in July. Analysts expected 175,0000 new jobs based on June’s reading of 231,000 jobs. ADP Payrolls reported 178,000 private sector jobs created in July as compared to June’s reading of 191,000 new jobs created.

The national unemployment rate dropped to 4.30 percent as expected and was lower than June’s reading of 4.40 percent. Lower unemployment readings suggest that fewer people are seeking full-time work.

Whats Ahead

This week’s scheduled economic reports include readings on job openings, inflation and core inflation. Weekly readings on mortgage rates and new jobless claims will also be released.

What’s Ahead For Mortgage Rates This Week – July 10, 2017

Last week’s economic reports suggested that demand for homes is rising despite a jump in mortgage rates and rising home prices fueled by low inventories of homes for sale. Demand for homes rose by 1.40 percent as interest rates jumped after the 10-year Treasury rate rose by 10 basis points.

Construction spending was unchanged in May as compared to a -0.70 percent reading in April. Although builders express high confidence in housing market conditions, construction spending continued to lag behind spending levels based on builder confidence readings.

Home buyers received good news as major credit bureaus removed two key components from consumer credit reports. Fannie Mae and Freddie Mac raised the debt/to income ratio for home loans from 45 percent to 50 percent of gross income. This move was made to help would-be home buyers swamped with education debt. Doug Duncan, Fannie Mae’s chief economist, said that raising the debt to income ratio would not increase lender risk significantly.

Mortgage Rates, New Jobless Claims Rise

Mortgage rates rose last week. Freddie Mac reported that the average rate for a 30-year fixed rate mortgage rose eight basis points to 3.96 percent; the average rate for a 15-year fixed rate mortgage rose five basis points to 3.22 percent. The average rate for a 5/1 adjustable rate mortgage rose four basis points to 3.21 percent. Discount points averaged 0.60 percent for a 30-year fixed rate mortgage and held steady at 0.50 percent for 15-year fixed rate mortgages and 5/1 adjustable rate mortgages.

Jobless claims rose last week to 248,000 new claims from the prior week’s reading of 244,000 new claims, but this increase does not appear to be related to layoffs. Non-Farm Payrolls for June increased to 222,000 jobs added as compared to 180,000 jobs expected and May’s reading of 152,000 jobs added. Non-Farm Payrolls include public and private-sector jobs.

ADP Payrolls, which reports private-sector job growth, dipped in June to 158,000 jobs added as compared to 230,000 private-sector jobs added in June. Employers have repeatedly cited difficulty in finding skilled candidates for job openings, which makes it less likely that they’ll lay off employees who have needed skills. The national unemployment rate edged up in June with a reading of 4.40 percent against expectations of 4.30 percent and May’s reading of 4.30 percent.

Whats Ahead

This week’s scheduled economic reports include testimony by Fed Chair Janet Yellen, readings on inflation and core inflation and retail sales. Mortgage rates and new jobless claims will be released along with a reading on consumer sentiment.

What’s Ahead For Mortgage Rates This Week – June 5, 2017

Last week’s economic releases included readings on inflation, core inflation pending home sales and multiple reports from the labor sector. Weekly readings on mortgage rates and new jobless claims were also released. Pending home sales were lower and weekly jobless claims rose, which illustrates continued volatility in the economic sector.

Inflation rose 0.40 percent in April, which matched projections and exceeded April’s reading of 0.30 percent. Core inflation, which excludes volatile food and energy sectors, grew by 0.20 percent and exceeded expectations of 0.10 percent growth based on a negative reading of -0.20 percent in March. The Federal Reserve has set an annual inflation rate of 0.20 percent as a benchmark for economic recovery.

Housing Data Mixed

Case-Shiller released its 20-City Housing Market Index for March; Home price appreciation held steady at 5.90 percent on a seasonally-adjusted basis year-over-year. Month-to-month, home prices rose by 0.90 percent. Seattle, Washington had the highest pace of home price growth in March, with 12.30 percent. Portland, Oregon followed with 9.20 percent home price growth and Dallas, Texas had the third highest level of year-over-year home price growth at 8.60 percent. Month-to-month home prices grew at a pace of 0.90 percent.

Despite indications of high builder confidence in current and future housing market conditions, construction spending decreased by -1.40 percent in April. Analysts expected an increase of 0.50 percent in construction spending based on construction spending growth of 1.10 percent in March.

Builders have consistently cited concerns over affordable lots and skilled labor, but industry professionals are not sure why high builder confidence in housing markets doesn’t correspond to lagging construction spending rates. Building more homes is viewed as the only path to easing high demand for homes caused by a shortage of homes for sale.

The Commerce Department reported fewer pending home sales in April with a reading of -1.30 percent; the March reading was -0.90 percent. Pending home sales typically indicate further closed sales and trends in mortgage loans.

Mortgage Rates Mixed, New Jobless Claims Rise

Freddie Mac reported slight change in mortgage rates last week; the average rate for a 30-year fixed rate mortgage was one basis point lower 3.94 percent. Rates for a 15-year fixed-rate mortgage averaged 3.19 percent and was unchanged from the prior week. The average rate for a 5/1 variable rate mortgage rose four basis points to 3.11 percent. Discount points averaged 0.50 percent for all three types of mortgages.

New Jobless Claims Hit 5Week High

First-time claims rose from the prior week’s reading of 235,000 new claims to 248,000 new claims filed. Analysts had expected 239,000 new claims filed. Analysts said that higher claims were connected to the Memorial Day holiday and characterized last week’s higher number of claims as a “blip.”

In other labor-sector news, ADP reported 253,000 new private-sector jobs in May; the Commerce Department reported 138,000 new government and private sector jobs. This reading may be revised based on an expected 185,000 public and private-sectors jobs for May and April’s reading of 174,000 public and private-sector jobs.

National unemployment ticked down in May to 4.30 percent. Analysts had expected no change in April’s reading of 4.40 percent.

Whats Ahead

This week’s scheduled economic news includes readings on job openings, consumer credit along with weekly reports on mortgage rates and new jobless claims.