May 21st, 2020 10:29 AM by Jackie A. Graves, President
Mortgage rates remain low by historical standards, making it a great
time to lock in a rate. But with mortgage rates, what you see may not be what
The rate you’ll get compared to the average rate depends on a number of
factors, including your credit, down payment and loan type. Current economic
conditions even play a part, and right now lenders are responding to the
weakened economy and job market with stricter lending requirements.
Currently, the average 30-year fixed-rate loan sits at 3.56 percent,
while the average 15-year fixed-rate mortgage is 2.91 percent, according to
Bankrate’s weekly national survey of average rates in major markets across the
country. The last time rates were this low was in 2016.
“Lenders are tightening, expecting a slightly riskier lending
environment with the potential for borrowers to require forbearance or go
delinquent,” says Joel Kan, associate vice president of economic and industry
forecasting for the Mortgage Bankers Association.
Stiffer lending requirements can impact the loan offerings that are
available to borrowers, and in some cases it might push rates higher, says Kan.
That’s especially so for borrowers with lower credit scores and high
loan-to-value ratios (LTVs).
“Relative to the posted rate, there’s going to be an adjustment based on
the borrower’s profile, where the property is located and the kind of loan,”
Factors that influence your mortgage rate
Your credit score is one of the biggest factors of the rate you’ll
receive. That’s because interest rates are set partially based on your
riskiness as a borrower. Lenders see borrowers with higher credit scores as
less likely to default on their loans, and less risk generally translates to
lower mortgages rates.
Right now borrowers with scores above 720, on average, are getting
mortgage rates 78 basis points lower than those with scores below 660,
according to a recent report by the Urban Institute. The gap jumps up higher in
the nonbank space, increasing to 83 basis points.
At first glance, 78 basis points might not seem like a big difference,
but it adds up quickly.
For example, let’s say you borrow $200,000 at 3.5 percent on a 30-year,
fixed-rate loan. You’d pay $898 per month in principal and interest and more
than $123,000 in interest over the life of the loan. An interest rate of 4.3
percent moves your monthly payment up to $989 and your total interest to more
You can use a mortgage
calculator to play around with interest rates, down payment amounts,
loan amounts and other considerations to see how various factors influence your
payment and interest.
Credit, of course, is only one of the ways in which lenders determine
risk and the mortgage rate you receive. Here are some big factors that
influence your rate:
Having a 20 percent down payment marks you as a less risky borrower,
which means you’ll often receive a lower rate.
You can also get a lower rate by paying closing costs and other borrower
fees upfront, instead of rolling them into your loan.
And short-term loans tend to come with lower rates as well, since you’re
paying the mortgage off faster. This means less risk for the lender.
How to shop for the best mortgage rates
One way to get a great rate and an estimate of the rate you’ll receive
is to shop at multiple lenders. Keep in mind that different lenders may charge
different rates to the same person based on the same information. So look at
more than just your local bank or credit union — grab quotes from online
You can start out by comparing
mortgage rates from top lenders throughout the nation based on your
location, mortgage type, down payment, credit score and loan term.
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