Getting A Mortgage? Know What Influences The Interest Rate

Are you going to be purchasing a home and need financing to do it? If so, you may be wondering what will influence the interest rate that you are given. While the federal government determines the overall interest rate for borrowing money, there are many factors that can alter your personal interest rate for a mortgage to either increase it or decrease it. Here are some of those influential factors for when you get a mortgage.

The Down Payment

The amount of money you pay upfront for a down payment actually plays a big role in your mortgage interest rate. The reasons can be quite obvious as well. If you have more money saved for a large down payment, you are viewed as less of a risk to a mortgage lender since you have proven your ability to save money. As a result, they'll give you the money for your home at a slightly lower interest rate than you would otherwise get.

However, there are limits to how big of a down payment you can provide and see the benefits. That's because an extremely large down payment results in the lender giving you less money, and you will make less money over the course of the loan because of that. In general, you can expect the benefits to top out at a 20% down payment. You'll not only get a great interest rate with 20% down, but you'll involve paying private mortgage insurance which will be tacked onto a mortgage.

The Loan's Length

You can expect to pay a higher interest rate when you need to borrow money for a longer period of time. While most loans are for the traditional 30-year length, there are other loan lengths that will require you to pay off the loan in less time with a lower interest rate. You will see significant savings by cutting the time in half to a 15-year loan, which can actually save you 2.2 times the amount of interest paid over the entire loan.

There are also adjustable rate mortgages, often referred to as ARMs. These mortgages have a much lower rate for the initial part of the loan, but will increase after a set number of years to a much higher rate. This type of mortgage is ideal if you know you won't be living in the home for very long, and want to cut down on your monthly payment.

For more information about mortgage rates, talk to a local lender.

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