Mortgage Interest Rates

What Are Mortgage Interest Rates?

Mortgage interest rates are the price you pay to get a loan using your real estate properties as collateral.  They determine your monthly payments over the life of the loan.

Factors That Determine A Borrower’s Mortgage Rates?

Mortgage rates, on the borrower’s side, are influenced by the borrower’s financial “portrait,” the type of property, and type of loan.

In other words, by how risky lenders perceive that making the loan is.

As regards borrower “portrait,” credit score and history, money available, and employment history are factors.

As regards property type, detached single-family houses are considered less risky than most condos and 2-4 unit properties (well, some lenders consider 2-unti properties to be the same as a detached-single family house) while 3 and 4-unit properties are considered to be riskier still, while non-warrantable condos (condos against which Fannie Mae, Freddie Mac and governmental agencies won’t lend) are the riskiest.

As regards loan type, there are several things that come into play:

  1. LTV (loan-to-value ratio); the higher the LTV, the higher the interest rates) and closing costs.  (Some loan programs allow for closing costs to be rolled into the loan amount, which increases the effective LTV).
  2. Loan term (the longer the repayment period, the higher the interest rate)
  3. Interest rate type: ARM’s have low initial rates, then rates can go up by several points; balloon loans tend to have higher rates than fixed-rate loans.
  4. Loan purpose. Mortgages on second homes are riskier than mortgages on primary residences; on investment properties they are riskier still.