What Determines Your Mortgage Interest Rate?

When people ask "what are rates today?", the honest answer is "it depends". Two borrowers applying on the same day can receive different rates. Part of that comes from the broader market, and part comes from the details of each loan.

The market side

Mortgage rates move daily, sometimes more than once a day. Some of the big influences:

• The bond market: mortgage rates tend to track investor demand for mortgage-backed securities and move loosely with longer-term Treasury yields.
• Inflation expectations: when investors expect higher inflation, they generally demand higher rates.
• Economic data: jobs reports, inflation reports and growth data can all move rates.
• Federal Reserve policy: the Fed doesn't set mortgage rates directly, but its policy and outlook influence the bond market.

None of these are within your control, and no one can reliably predict where rates are heading.

The factors you can influence

Credit score

Lenders price loans by risk. Higher credit scores generally qualify for better pricing, and the effect can be significant at certain score thresholds. Paying down credit card balances and paying on time can help over time.

Down payment and loan-to-value

A larger down payment lowers the loan-to-value ratio (LTV), which can improve pricing.

Loan type

Conventional, FHA, VA and jumbo loans are priced differently. Each has its own trade-offs between rate, mortgage insurance and fees.

Loan term

Shorter terms like 15 years often carry lower rates than 30-year loans, though with higher monthly payments.

Fixed vs. adjustable

ARMs often start lower than fixed rates. See adjustable vs. fixed.

Occupancy

Primary residences typically get the best pricing. Second homes and investment properties usually cost more.

Property type

Condos, 2–4 unit properties and manufactured homes may be priced differently from single-family homes.

Loan amount

Very small and very large loans can be priced differently.

Points and credits

You can pay discount points to lower your rate, or take a higher rate in exchange for lender credits toward closing costs. See mortgage points explained.

Lock period

Locking a rate for longer usually costs a bit more than a shorter lock.

Why shopping matters

Different lenders price the same scenario differently, and their pricing changes at different times. As an independent broker, I can compare options from multiple wholesale lenders for your scenario. That doesn't guarantee a particular rate, but it gives a wider view than a single lender's menu.

Comparing offers fairly

When comparing quotes, make sure you're looking at:

• The same loan type, term and lock period
• The same day, since rates change
• Points and lender fees, not just the rate
• The APR, which reflects some costs, though it has its limits

The Loan Estimate is the best apples-to-apples tool.

An example

These numbers are for illustration only. Two buyers apply on the same day for a 30-year fixed conventional loan of $600,000. Buyer A has a 780 score and 25% down. Buyer B has a 680 score and 5% down. Buyer B's rate is likely higher, and they'll also pay PMI. Improving the credit score before buying, or putting more down, could narrow the gap.

Questions?

If you'd like to see what rate range may apply to your situation right now, contact me or start your pre-approval. I'll walk you through the trade-offs rather than just quoting a number.