Mortgage rates are determined by credit score, loan-to-value ratio, inflation and more.
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What factors determine mortgage rates?
Your mortgage rate is determined by many factors. Some are within your control and some aren’t. With awareness of these factors, you can feel more confident about getting a competitive interest rate when you choose a mortgage lender.
Mortgage rate factors that you control
Lenders adjust mortgage rates depending on how risky they judge the loan to be. A riskier loan has a higher interest rate.
When judging risk, the lender considers how likely you are to fall behind on payments (or stop making payments altogether), and how much money the lender could lose if the loan goes bad. The major factors are credit score and loan-to-value ratio.
Credit score
The lowest mortgage rates go to borrowers with credit scores of 740 or higher. These borrowers have the broadest choice of loan products.
Interest rates tend to be a little higher for borrowers with credit scores of 700 to 739. For borrowers with credit scores from 620 to 699, mortgage rates are even higher. These borrowers might find it difficult or impossible to get high-amount jumbo loans.
With a credit score below 620, the interest rates are even higher, and options are fewer. Most of the loans available at this level are insured or guaranteed by the government.