When it comes to mortgage rates, there’s no getting around the fact that they can be complex. Yet, at Mercer Savings Bank, we strive to simplify the process for our customers. It’s because of this that we’d like for you to take a close look at these factors that affect mortgage rates in terms that we know you’ll find simple to understand.
First and foremost, when it comes to securing your own mortgage, your credit score will directly influence your rate. The higher your score, the lower your interest rate will be, thus meaning the more favorable the loan will be for you. If you happen to have a credit score that is 620 or below, you’re going to have a mortgage with a rather high interest rate. In fact, you may find it in your favor to improve your score before applying for a loan.
ARM or Fixed Rate?
Another factor that directly influences mortgage rates is the type of loan you choose to take out. If you secure a mortgage with a fixed rate, you can rest assured that your interest won’t vary over the life of the loan. If, however, you take out a loan with an adjustable rate, you may have a lower interest rate for a certain period of time, followed then by the rate going up, and then possibly back down. An adjustable rate on a mortgage loan is usually favored by those who have an income that allows for the rate to go up and down without causing the person to get behind on monthly payments.
Another factor that influences mortgage rates is the Federal Reserve. When this agency purchases securities through the U.S. Treasury, especially long-term securities, this causes interest rates to become lower. So even during global economic crises, long-term mortgage interest rates can still hit record lows. The easiest way to understand how Fed Funds influence mortgage rates is that these monies are used to increase or decrease economic activity. The lower the rates, the greater the amount of economic activity that can take place. On the other end of the spectrum, the higher the rate, the better the Federal Reserve can cool down economic activity, which minimizes inflationary pressures.
If you have questions about mortgage rates and the many factors that affect them, please contact a reputable representative at Mercers Savings Bank today. Not only can we explain these many factors, but we can help you understand the entire mortgage loan process.