Anytime someone purchases a new home using a home loan, the unpaid portion of the loan (the amount left over after the deposit is deducted) comes with a mortgage rate. But, even though every mortgage comes with its own rate, not many buyers really understand what the rates are for and how they are determined.
Here, our exclusive buying agent's de-mystifies mortgage rates so those in the market for a new home will be more informed and more likely to make a smarter purchasing decision.
What are Mortgage Rates?
Mortgage rates are basically interest rates that lenders pay for borrowing money. In a mortgage scenario, however, borrowers pay the interest instead of earning the interest.
One of the most common misconceptions about mortgage rates is that they are set by the Federal Reserve. The Federal Reserve does not set the rate directly, but the real estate market is what actually sets the rate. Here is how it is done:
The Federal Reserve sets one main rate called the Federal Funds Rate. This is the interest rate that banks pay and usually has a major impact on mortgage rates. The Federal Reserve has the right to change this rate up to eight times a year. As the Fed's rate fluctuates, the mortgage rates will usually follow the pattern.
How are Mortgage Rates Determined?
It might come as a surprise to some, but there is no set given rate at any given time. Every individual's mortgage rate is determined by a specific set of factors. These include:
Credit Score – When it comes to mortgage rates, the better the borrower's credit is, the lower their mortgage rate is going to be. Ideally, a score of 740 or higher is needed to secure the lowest possible rate at the time.
Points Purchased – A "point" is interest that has been pre-paid by the borrower against their loan. For every point one buys, their mortgage rate drops a quarter percent. Each point purchased costs 1% of the loan amount, so for a $100,000 loan, one point costs $1,000.
Down Payment Amount – The down payment reduces the amount the home buyer needs to borrow and as a result, the more one pays up front at closing, the better the rate they will qualify for.
Local Real Estate Market – Mortgage rates can differ from place to place because they are based on the state of the local real estate market. Therefore, in healthier markets, the rates could be somewhat higher than they are in areas where the real estate market is struggling.
How Have Mortgage Rates Changed Since the 2008 Recession?
When the real estate market and national economy crashed in 2008, it caused mortgage rates to plummet to all-time lows. The reason is because consumers are the main drivers of the economy and when the recession hit, consumers stopped spending money. With unemployment skyrocketing, there was simply less money available in the economy and as a result, the rates dropped.
Over the past 12 months, however, rates have started to climb because the economy has gradually improved and new homes are once again selling. Along with interest rates, home prices have also started to rise, thus signaling a healthier real estate market and a more stable economy.
Let Our Exclusive Buyer's Agent Help You Get the Best Deal on Your New Home
At Just For Buyers Realty, our exclusive buying agents are experts at helping our clients negotiate the best deals on their home purchases. We help our clients obtain the best possible terms and help them lock in low mortgage rates. Just give us a call at 910-444-2851 today. Mortgage rates fluctuate on a day-to-day basis, so lock in now and enjoy the greatest savings.
Just For Buyers Realty
Just For Buyers Realty