How Are Mortgage Rates Determined? 5 Insights On Landing The Lowest Rate

How Are Mortgage Rates Determined? 5 Insights On Landing The Lowest Rate

The rate you would pay upon closing a new mortgage would vary quite a bit from month to month and year to year. The mortgage interest rates you are likely to be offered today for, say, a 30-year-fixed or a 5/1 ARM, will be different than the rates offered in a month or a year from now.

However, the rate can also vary depending upon the applicant - as well as with the lender with whom you are applying for a mortgage loan.

Whether you are looking for a first-time mortgage, are wanting to refinance your home mortgage, or are considering moving house, the rate that you pay is important. In fact, paying just a percentage point or two more or less could mean a difference of tens of thousands of dollars in interest payments over the life of your loan.

If you are wondering, "How are mortgage rates determined?", here are 5 insights for you to consider:

1. Fixed-rate mortgage interest rates are determined by Treasury note yields:

Treasury notes are debt instruments that the U.S. federal government issues as a way of paying federal debts. The yield on these notes varies depending upon whether they are auctioned at above or below face value. As the yield on Treasury notes changes, so do the average rates offered for fixed-rate mortgages.

2. Variable-rate mortgage interest rates are determined by the fed funds rate:

For adjustable rate mortgages (ARMs), on the other hand, the rate is determined by the fed funds rate. This is the rate that banks charge other banks for overnight loans.

3. The interest rate you are offered will also be determined by your credit score:

However, your credit score also plays a part in the rate you pay. People with excellent or good credit scores will inevitably be offered more favorable (lower) interest rates than people with fair or poor scores.

4. Finally, your rate is determined by which lender you elect to go with:

Apart from today's Treasury note yield or your credit score, the rate you are offered will also vary greatly depending upon your choice of lenders.

5. Shop multiple home loan lenders and get quotes from at least 5 of them:

In order to pad the odds and stack things in your favor for getting a good rate, make sure to get quotes from at least 5 mortgage lenders. This is the best way to greatly increase your chances of landing a great rate.

Consider these 5 insights on how mortgage interest rates are determined and how to land yourself the lowest rate.

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