What Is a Mortgage Interest Rate?

A mortgage rate is the cost of borrowing money to buy a home. When borrowing money from a lender to purchase a house, you must repay the amount borrowed plus interest, which is calculated using the mortgage interest rate.

A higher rate means it is more expensive to borrow money, and a lower rate means borrowing money is more affordable. This is why borrowers prefer low mortgage interest rates. The lower the rate is, the less you may pay each month in interest expenses. This means a lower monthly mortgage payment and a lower interest expense over the course of the loan.

Are Mortgage Rates and Interest Rates the Same?

“Interest rates” is a broad term that can describe the cost of borrowing money for any loan type. You could, for example, have an interest rate on an auto loan, student loan or personal loan. The term “mortgage rates” specifically refers to the interest rates on home loans.

What Factors Determine Mortgage Rates?

Mortgage rates are based on the perceived risk of lending[1]. The greater the risk to the lender, the higher the mortgage rate to offset that risk. And several factors determine risk, including general economic conditions, specific lender practices, and individual borrower qualifications.

The factors that influence mortgage interest rates include the following.

The Federal Funds Rate, Set by the Federal Reserve

While the Federal Reserve does not directly set mortgage rates, it does set the federal funds rate, which is the target rate for banks borrowing from one another in the short term. This rate changes in response to economic conditions such as inflation or market stagnation.

And many lenders use this rate to determine their prime rates for different loan types, from auto loans to credit cards to home loans.

Your Credit Score

A high credit score indicates that a borrower has used debt responsibly in the past, making payments on time and keeping debt manageable. This means borrowers with higher credit scores may qualify for lower mortgage rates than borrowers with lower credit scores.

The Loan Type

Different mortgage loan types are available to homebuyers and, because of their differing risk levels, mortgage rates can vary by loan type. As one example, the U.S. Department of Veterans Affairs (VA) backs VA loans. Because this makes it less risky for the lender than other mortgage loan types, a VA loan may come with a lower interest rate.

The Loan Amount

A higher loan amount might result in a higher interest rate, particularly if the borrower requires a jumbo loan, in which the loan amount exceeds the maximum loan limits for a conventional loan.

The Down Payment Amount

The greater the down payment amount, the more equity there is in the home. Equity is the buyer's ownership share of a property, as opposed to the share of the property financed by debt. The greater the equity, the lower the risk for the lender. So a higher down payment can lower your rate[3].

The Loan Term

A shorter loan term allows the lender to recoup its investment in the loan more quickly. This reduces the lender’s risk and can result in a lower interest rate than a loan with a longer term[3].

The Mortgage Rate Type

The mortgage rate type can also affect your rate amount. To understand how and why, we need to explore the common types of mortgage rates, which we will do in the next section.

Source

Big Bank vs. Mortgage Broker: What's the Difference?

Yes - we can compete with Big Banks and win on terms, pricing and service in most situations!! I get this question often…so throwing out to you differences!

Are you planning to buy a home and wondering where to get your financing? Here's a quick comparison to help you make an informed decision!

**Big Bank**

• Convenience: If you already have accounts with a big bank, it might seem convenient to get a mortgage with them.

• Reputation: Big banks have established brands and reputations.

• Limited Options: Big banks typically offer their own mortgage products, which might limit your choices.

• Stricter Criteria: Banks often have stricter lending criteria, which can make it harder to qualify for a loan.

**Mortgage Broker**

• Wide Range of Options: Mortgage brokers have access to a variety of lenders and mortgage products, giving you more options to find the best rate and terms.

• Personalized Service: Brokers work for you, not the lender, so their goal is to find the best mortgage for your unique situation.

• Flexible Criteria:  Brokers often have relationships with a variety of lenders, some of whom may be more flexible with their lending criteria.

• Negotiation Power: Brokers can negotiate on your behalf to get better rates and terms than you might get on your own.

Your Dream Home is Within Reach!  As a dedicated mortgage broker, I'm here to help you navigate the complexities of home financing and find the best mortgage for your needs. Let's work together to make your homeownership dreams come true!

NMLS ID 394275 | DRE ID 01769353

Home Buyer Tips: Do's and Don'ts

The Do’s When Financing A Home

These are suggestions not necessarily recommendations. Please consult with you Loan Officer for more details.

• Get pre-approved for a loan
• Set a realistic budget
• Have all your required documentation in place
• Prepare to verify your income and assets
• Let us know if your down payment is a gift
• Continue to pay all of your bills on time
• Make sure that your earnest money check comes from funds withdrawn under your own bank account
• Start shopping for homeowners insurance
• Contact us if you think any of these don’ts shared below are unavoidable. We can help you determine the right course of action that may provide the least impact on your home loan process.

The Don'ts When Financing A Home

• These are suggestions not necessarily recommendations. Please consult with you Loan Officer for more details.
• Change jobs, quit your job or become self-employed
• Buy or trade in a vehicle
• Increase debt/balances or miss payments
• Spend money you have set aside
• Omit debts or liabilities from your loan application
• Buy furniture or appliances
• No new loans, credit cards, or lines of credit
• Change bank accounts
• Co-sign any loan
• Use cash for your down payment or earnest money
• Wire closing funds (Until you speak directly with our office for information first)

Source

5 Dos & Don'ts - Applying for a Home Loan

1. Do: Check on the status of your credit.

Do this as early as possible in the planning process – as much as a year in advance if you think there could be negative items impacting your credit score. This will give you time to pay off any outstanding debt to improve your score if needed.

2. Don't: Immediately begin buying furniture and accessories once your loan is approved.

Your credit will be monitored throughout the process, so be mindful of your spending and avoid opening any new lines of credit during this time.

3. Do: Have your down payment ready.

Before the housing market crashed, it was easier to secure a home loan with little or no down payment, but things have changed. Although some first-time home buyer programs offer payment options requiring little money down, increase your chances of getting a home loan by planning to put down at least 10 percent of the cost of the home.

4. Don't: Quit your job.

It's important to show how responsible you are when you're applying for a home loan. Lenders want to see a strong, reliable work history coupled with responsible spending before they're ready to help you get approved for a home loan, so stay put in your job during the application and closing process.

5. Do: Have your budget in mind.

You need to know exactly how much you can afford to spend each month on mortgage payments. Industry experts suggest a good rule of thumb is to keep your house payment below 25 percent of your whole income.

Approximately 31 percent of today's home buyers are first-timers.  Source

Happy Mothers Day!

 

Happy Mothers Day! Enjoy your special day!

Work and Associates Home Loans

Phone: 916-847-3090

1350 Old Bayshore Hwy Ste. 520

Burlingame,  CA  94010

margeate@workhomeloans.com

NMLS ID 394275 | DRE ID 01769353

So You're Ready To Buy A House? (Now What?)

 

Downsides of Home Equity Lines of Credit

• The rate is adjustable and tied to prime
• It can go up significantly during periods of inflation
• Rate adjustments can be frequent relative to other ARMs (multiple times per year)
• Higher interest rate caps

There are a number of reasons to steer clear of HELOCs. The main reason being that it’s an adjustable-rate mortgage.

Whenever the Fed moves the prime rate, the rate on your HELOC will change.

Usually it’s only .25% at a time, but the Fed raised the prime rate about 20 times in a row since 2004, pushing the rate from 4% to 8.25%, before it began to move the other way.

Then recently raised rates 11 times from early 2022 to mid-2023, pushing prime up more than five percentage points in the process.

So your interest rate can fluctuate greatly, even if the Fed moves prime in so-called “measured” amounts.

HELOCs generally adjust either monthly or quarterly, depending on the terms specified by the lender.

Check your paperwork so you know what to expect after the Fed makes a move.

Also note that HELOCs don’t have periodic interest rate caps like standard adjustable-rate mortgages, just lifetime caps, so the rate can fluctuate as much as the Fed allows it to, up to 18% in California (it varies by state).

Term of a Home Equity Line of Credit

• Typically begins with a 5-10 year draw period
• Where you can make interest-only payments each month
• Followed by a 10-20 year repayment period
• Where you must pay back principal and interest to satisfy the loan

A HELOC normally has a 25-year term, with a draw period and a repayment period. The draw is typically the first 5 to 10 years, followed by the repayment period of 10 to 20 years.

But it can vary, with some HELOCs offering longer draw and repayment periods to lessen the payment burden. And some shorter draw periods between 3-5 years.

During the draw period, the homeowner can borrow as much as they’d like within the line amount, and can make interest-only payments on the amount drawn upon.

There is usually a minimum payment, just like a credit card.

After the draw period, the borrower must pay off the principal of the HELOC, along with the interest. This period is known as the repayment period.

Typically the loan balance is broken down into monthly payments, but there could also be a balloon payment because of the way the loan amortizes.

Also note that some HELOCs don’t have a repayment period, so full payment is simply due at the end of the draw period. Source