Pop Quiz. Which of the following is a factor in determining your individual mortgage rate?
a) Your Loan Term
b) Ben Bernanke and the FED
c) The little old man behind the green curtain
One of the more frequently asked questions from borrowers is: What determines how high my interest rate will be?
The answer is both simple and complex. There are several factors at play here…
In a word, what makes your interest rate higher or lower is risk. Lenders set the price for the money they lend (interest rate) based upon the risk level of the loan. If you (or your loan scenario) is considered risky, then a premium is added to the rate to compensate the lender for taking on that risk. Likewise, lower rates are offered to borrowers with less risky scenarios (think prime rate).
If you answered (a) to the question above – congratulations! You may be a real mortgage expert. Watch the video below to see the rest of the factors that help determine risk level.
If you answered (b) – you’re close. Although the FED makes decisions that effect the overall climate of lending, they do not have a direct influence on determining an individual’s rate. This is determined by the lenders actually making the loan. Watch the video to see the factors that determine just how risky you might be!
If you answered (c) – well, hmmmm… just watch the video.