What can you control about your mortgage rate?

‘So what rate did you get?’ If you’ve ever had a nosy family member or friend ask this question when you’re applying for a mortgage, we feel your pain. Some people ask to be rude, while others do it so they can brag about their good rate. But now, with rates and inflation rising, your friends and family might be asking with a bit more panic in their voices. Everyone is afraid of getting trapped at a high rate.

Your mortgage rate is a vital part of arranging your home purchase. But how is your mortgage rate determined? Our advisors can walk you through the process. They’ll explain what you can control about the rate you qualify for and what factors outside of your control affect your proposed rate.

So what can you control? More than you think! First off, one of the most critical factors is your credit score. A score of 740 or higher will usually net you a lower rate and give you the most flexibility. On the other hand, scores below that, or even lower than 620, may push your rate higher and reduce your financing options, and you may be required to buy mortgage insurance.

The next factor that you can control is your loan-to-value ratio (LVT). Your LVT is the loan’s value against the value of your down payment and the home you intend to buy. For example, a larger down payment lowers your loan-to-value ratio, while a smaller down payment raises it. The higher your loan to value is, the greater the lender’s risk and the higher your mortgage rate may be.

Other factors that you can control that affect your mortgage rate include the type of mortgage you are applying for, whether you are buying a second home or investment property, or whether you are using cash. Typically, loans for these types of purchases come with higher rates.

You can also control what kind of loan you apply for, your financial standing before you apply and how much you save for a down payment, but that’s only part of the mortgage rate puzzle. As we are currently seeing across the country, plenty of other factors go into determining mortgage rates. For one, inflation, the state of the economy, job growth, and other economic trends all affect the rates that lenders can give. Right now, as inflation rises, mortgage rates are also rising too.

Locking in a mortgage rate or choosing the right mortgage for your needs is difficult, especially now. That’s why it’s important to remember what you can control and focus on those factors. If you need to improve your credit, save a little more for your down payment, or adjust your spending expectations while rates are high, go ahead. That’s a wise choice, and you may save some money in the long run. But if you are ready to buy a home now, book an appointment with one of our loan advisors. We’ll walk you through your mortgage options and explain your rate options to you!