Where Mortgage Interest Rate Comes From?

As you probably know from fooling around with a mortgage calculator, the interest rate on your mortgage loan is critically important.

If the interest rate on a 30-year, $290,000 mortgage loan decreased from four percent to three percent, it would result in a savings of about $170 per month, which is more than $61,000 over the life of that loan! That’s like, a boat, or a car, or a trip around the world.

So who decides what that mortgage loan interest rate is? The answer is a little more complicated than you might think.

During tough economic times, loan interest rates drop in order to encourage borrowing. And although mortgage loan interest rates today remain near historic lows, they won’t stay that way forever; as the economy strengthens, they will certainly rise.

Another factor is the yield of the 10-year Treasury Bond. These Treasury Bonds are a great indicator of interest rate change over the course of a decade, making them a benchmark for other bonds as well as for long-term fixed-rate mortgages, which end up rolled into mortgage-backed securities.

The type of property purchased also factors into the interest rate. Investment properties usually carry higher rates, due to an increased level of risk, but live-in homes (as well as vacation homes) do not.

Finally, the most important factor in determining your interest rate is you! Risky borrowers pay higher rates, so a low credit score and a smaller down payment will typically increase your loan interest rate.

Obviously, there are a number of other factors that affect the loan interest rate you’ll receive. Regardless of those factors, Co/LAB Lending will help you find the mortgage loan that best fits your needs – and remember, your interest rate is but one component of your loan, so be sure to contact us today to discuss what’s right for you!