What Are Mortgage Rates Based On?
Mortgages are a mystery to those who have never applied for a mortgage loan. The most asked question: What are mortgage loan interest rates based on?
Technically, a number of factors can influence a mortgage loan interest rate. However, the two factors that have the greatest impact are a mortgage loan applicant’s credit standing and the prime interest rate.
Credit Standing
Credit standing, sometimes called credit rating or credit worthiness, is a reflection of how you have handled the debts you’ve accrued with creditors in the past. If you have lines of credit with multiple lenders and you have made regular payments to those creditors based on the terms and amounts promised, you will have a good credit rating. Today, “good” is considered a credit score of 680+. If you have established credit lines with lenders and haven’t paid, your credit rating will be poor and your credit score will be less than 550.
Prime Rate
The prime rate is the interest rate that is the basis for all mortgage loan interest rates. It’s determined by the banking industry and is based on the interest rate banks charge corporations for borrowing money. If you hear news of the prime rate dipping, expect mortgage loan interest rates to fall; if you hear about an increase, mortgages rates across may also increase.
Putting It All Together
The general rule of thumb is that those with “good credit” qualify for the lowest mortgage interest rates available; those with “bad credit” pay higher interest rates. And, since the prime rate is set independently of an individual’s credit rating, the interest rate one qualifies for is equal to the prime rate plus the rate the individual is eligible for based on their credit rating. Got it? Good!