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There are many reasons for why you get one interest rate and your neighbor gets another. There are also many reasons why interest rates you read in the paper and see on tv are not the interest rates you are quoted either by the bank, or by mortgage brokers.
Your credit score is the single largest factor effecting your interest rate. Simply put: the lower your credit score, the higher your interest rate. The following items will also determine which rates banks will offer you: |
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Money for a Down Payment |
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Banks like to see that you are investing your own money as well. This reduces the amount they have to loan you, lowers your LTV (Loan To Value) and lessens the financial exposure the bank is taking. |
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Cancelled Rent Checks |
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If the bank is going to loan you money for a home, it's logical they will want ot see your track record in paying for your current residence. Although there are exceptions, like being in the military, or living temporarily with parents it is best to show proof of your paying your rent with cancelled checks. |
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About the Rates from the Banks |
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A larger down payment – greater than 20% - will give you the best possible rate. Down payments of 5% or less should expect to pay a higher rate as you are starting with less equity as collateral. If you've got the cash now and want to lower your payments, you can pay on your loan to lower your mortgage rate. It's a simple concept, really: In exchange for more money upfront, lenders are willing to lower the interest rate they charge, cutting the borrower's payments. Closing costs are fees paid by the lender, if you don’t want to pay all of the closing costs, expect a higher rate which will pay the lender additional interest over the life of the loan. |
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| Several factors that affect your interest rate |
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Increase |
Or |
Decrease |
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Amount of Loan |
Rates Up |
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Rates Down |
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Length of Loan |
Rates Up |
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Rates Down |
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Adjustable Rate |
Rates Down |
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Rates Up |
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Down Payment |
Rates Down |
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Rates Up |
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Discount Points |
Rates Down |
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Rates Up |
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Closing Costs |
Rates Down |
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Rates Up |
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Credit Quality |
Rates Down |
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Rates Up |
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Income Level |
Rates Down |
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Rates Up |
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Lock In Period |
Rates Up |
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Rates Down |
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Credit quality and debt-to-income-ratio affect the terms of your loan through FICO Score. If you have good credit and your monthly income far surpasses your monthly debt obligations, you will get approved at a lower interest rate. However, if your monthly income barely covers your minimum debt obligations, even if you have a credit report, you will not receive the lowest available interest rate. |
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