Mortgage Rates:
Factors that detarmine your mortgage interest rate

With mortgage rates at all time lows, there is naturally quite a lot of focus on getting the lowest mortgage rates available. While I won't go so far to say that this is not important, I will say that it is not the ONLY factor that you should consider.

However, having said that, if you want skip all the mumbo jumbo below, click here for great rates with no hassle.

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There are basically three factors that affect your mortgage interest rates:

1. Your Credit Rating

2. Your Closing Costs

3. The Loan Program You Choose

We'll discuss all three of these only briefly because I have links to other pages that can go into more detail if you like. Just click on the highlighted words to go to that page. Then come back here and finish this on.:-)

The most important factor that will determine your mortgage interest rate is your credit scores. If you have poor credit, you will pay a higher rate than someone with excellent credit, if you can get qualified at all. Please don't think that I believe that people with bad credit are not good people, it's just that someone with slow payments or collections on their credit report represents a higher credit risk. I work with a lot of people who are credit challenged and I've briefly summarized what you need to do if you fall into this category in my page, mortgage loans for bad credit.

The bottom line here is to know what is on your credit report BEFORE you begin the mortgage rate shopping process.

You can find out what is on your credit report including what bills are showing open, the contact information for all listed creditors and who has been checking your credit rating, as well as get a FREE credit score all in seconds and all online by clicking the link below.

The next area that will have an affect on your mortgage rates is what you are willing to pay in closing costs.


If you are not willing to pay anything for closing costs, you can do this, but you will pay a higher interest rate. Hey, they have to earn their money somehow. I recently had someone I quoted my closing costs to tell me he thought that the mortgage origination fee, (how I earn my income) was paramount to blackmail. I asked him if he felt that he was blackmailing his employer every time he cashed his check? Needless to say, we did not see eye to eye on closing costs.

On the other end of the scale, you can choose to pay more to buy the interest rate down. What this means is that you might be willing to pay an extra, say 1/2 or 3/4 of a discount point (% of the loan balance - i.e. 1/2 point = .5% of the balance. 1/2 point on a $100,000 would = $500), to lower the interest rate down. For example, on the day of this writing, if you wanted to get a 5.625% mortgage rate on a 30 year fixed rate loan, you would have to pay a discount point of 1/4%(.25%) above the other closing costs to get that rate. The reason is because the going mortgage rate without any discount is 5.75%.

If you are totally lost, click here to go to the mortgage terminology page.

You need to decide which way is in your best interest (sorry for the pun). If you plan on selling or refinancing soon, (one - two years), it may be best to take a no closing cost loan and pay a bit higher rate. This is because it may take you two to three years of paying your payments at the lower rate to earn your closing costs back. For example if the closing coste equal $3000, and you are saving $100 per month, it will take you 30 months to earn back the closing costs. ($3000 divided by $100 per month)

If you plan to stay in your home for the foreseeable future, it is definitely in your best interest(the I go again), to get as low of rate as possible. For example, using the scenario above, after 30 months, your savings of $100 per month will continue on until you pay the loan off or sell the home.

The bottom line is for you to talk with your lender or broker and get some quotes so you can get the accurate information to make an intelligent decision. If you are working with someone who acts annoyed at all of your intelligent questions, find someone else. In the last few years, I think the mortgage profession has doubled or tripled so you may need to shop around for an intelligent, experienced and polite mortgage broker or lender, but it's worth it.

Lastly, I want to touch on loan programs. This area has grown dramatically in the past five years and can be difficult to keep up with. Most mortgage rate quotes you hear are for the 30 year fixed rate mortgage program. However, sometimes it may make sense to check out some other types of programs. For instance, if you know that you are most likely moving within the next five years, it may make sense to check out the 5/1 ARM. Also called introductory rate ARM's or Delayed ARMS. If you're retired and over 62 years old and concerned about making mortgage payments on your fixed income, a reverse mortgage may be perfect for you. You do want to do your homework and not get into anything that you'll regret late, but it's best to keep an open mind about the different mortgage programs available so you can be sure that you're getting the best mortgage rates available.