One of the most common concerns for the future homeowners is the interest rate which they will be paying in the upcoming years. Just like a digital watch, you only see a number which is your interest rate; however, there is no complex calculation to find out. The mortgage goes through several factors to decide the mortgage rate and the rate changes due to the factors. So, if you are saving money for buying a house in 2020, the mortgage rates can change after two years. Purchasing a house is one of the life-changing decisions and people generally take years to prepare. Only if you are aware of several factors, you can prepare accordingly.
Remember, the lenders have the power to adjust loan rates based on how risky they consider the loan to be. When the risk is high, the interest rate also goes up, and the common factor is the credit score here. If your credit score is lower than 740, the interest rates tend to be higher. For instance, borrowers with credit scores ranging between 620 and 699 might have to pay a hefty amount for the interest rates. Therefore, the credit score has an inverse relationship with the mortgage rates. Also, the loan-to-value is another factor to determine the mortgage rate. When the loan-to-value is higher than 80%, the mortgage rate is likely to be high putting the lender at a greater risk. Instead of worrying, you should look deeper into the factors used for the lowest mortgage rates in Houston. To know more, take a look below.
Housing Market Conditions
In the housing market, trends and conditions leave an influence on the mortgage rates. If only a few houses are sold or built, the decline of investments in this sector can decrease the mortgage rates. When the customers are renting more than buying houses, such a situation takes the credit scores downward. If there is a demand from the consumers’ side, the lenders are bound to set the interest rates high.
Loan Term Matters
The borrower might have to choose between a 30-year option and a 15-year loan. As most of the homeowners rely on the former loan option, it is wise to invest in shorter loan terms for lower interest rates. So, the bank will take the investment faster when you are choosing a shorter loan term; however, the bank will receive a higher payment from you every month. If you are willing to choose this path for lowering the interest rate, you should devise a smart plan.
Federal Reserve Interferes
The Federal Reserve does not exactly fix the loan rates but it increases or decreases short-term loan rates to expand movements in the economy. Therefore, the mortgage rates go down due to the economic forces including stock prices, retail sales, housing starts, and home sales. Federal rates and loan rates are dependent on each other; however, both of them generally take a similar direction.
There are, of course, other factors that matter and lower the mortgage rates. If you can get the help of a professional lender, you can sort it out easily!
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.