Worried About Mortgage Rates? Control What You Can
With all the buzz about mortgage rates, it’s easy to get caught up in the speculation. While it might seem like the Federal Reserve (aka the Fed) directly sets these rates, that isn’t the case. Mortgage rates are influenced by a variety of factors including geopolitical events, economic shifts, and inflation, among others. Predicting how it will shake out can leave you worrying.
Rather than trying to time the market, which is often unpredictable and beyond individual control, focus on what you can manage. Let’s take a look at what you have control over that influences your timing for buying a home.
Control Your Credit
Your credit score plays a crucial role in determining your mortgage rate. A higher credit score can significantly improve your chances of securing a lower interest rate. CNET points out:
“You can’t control the economic factors influencing interest rates. But you can get the best rate for your situation, and improving your credit score is the right place to start. Lenders look at your credit score to decide whether to approve you for a loan and at what interest rate. A higher credit score can help you secure a lower interest rate, maybe even better than the average.”
Maintaining or improving your credit score is so important, especially with current rate fluctuations. Consult with a trusted loan officer who can provide you with tailored advice on boosting your credit.
Explore Different Loan Types
Mortgage rates also vary depending on loan type. The Consumer Financial Protection Bureau (CFPB) explains:
“There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose.”
A great mortgage team like ourselves will go over your options with you, breaking down which loans you qualify for and how they will affect your mortgage rate and monthly payment.
Consider the Term of Your Loan
The term of your loan – or how many years you have to repay the loan – is another way you can control your mortgage rate. Freddie Mac advises:
“When choosing the right home loan for you, it’s important to consider the loan term, which is the length of time it will take you to repay your loan before you fully own your home. Your loan term will affect your interest rate, monthly payment, and the total amount of interest you will pay over the life of the loan.”
Depending on your financial goals and current situation, the term of your loan could influence your mortgage rate significantly.
Other Things You Can Control
There are several other factors within a homebuyer’s control that can influence their mortgage rate such as:
- Down Payment – A larger down payment often results in a lower interest rate because it reduces the lender’s risk. Even increasing your down payment from 3% to 5% can change your rate. Generally, a down payment of 20% or more can help you avoid paying private mortgage insurance (PMI), which can also lower your overall monthly payment.
- Debt-to-Income Ratio (DTI) – This ratio measures your total monthly debt payments against your gross monthly income. A lower DTI ratio demonstrates to lenders that you are less of a risk, which can help you secure a lower mortgage rate. Improving your DTI can involve paying down debt before applying for a mortgage. Check with your mortgage experts before paying off debts as they can help advise on which ones will be most beneficial.
- Shopping Around – As mortgage brokers, this is something we handle for you! No need to complete multiple applications across several different lenders. We shop the best rates and programs for you and your scenario.
While it’s impossible to control global economic conditions, focusing on the elements within your reach can make a substantial difference in your homebuying experience. Let’s connect to explore how you can optimize your financial profile. By strategically managing these factors, you might mitigate the impact of higher rates and secure the best possible terms for your situation.
