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Mortgage Rate Factors: What You Need to Know

mortgage rate factors

The Importance of Mortgage Rate Factors

The concept of mortgage rate factors should be known to both parties — the lender and borrower — to bring about a bilateral harmony where the lender is protected from the payment-lapse risk and the borrower doesn’t end up overpaying the principal amount.

A mortgage loan can be an avenue to your dream of buying a house. However, it comes with the liability of paying interest to the lender, which can increase the long-term cost of your purchase. Naturally, you would want to choose a mortgage loan with the lowest interest rate to get the best of both worlds.

While negotiating interest rates is possible, it’s also important to know the grounds on which you can do so. To help you master the art of interest-rate negotiation, here is some useful information to ensure you have a smooth buying journey.

Understanding Mortgage Rate and How it is Determined

When a mortgage lender lends you an amount, they bear the risk of your failure to repay. To protect them against such a loss, the borrower is bound to pay them a fixed monthly sum, which is a predetermined interest rate over the life of the loan. This interest rate is called the mortgage rate. It is over and above the monthly installment you pay to the lender.

The mortgage rate is different from the Annual Percentage Rate (APR). The former is the cost you will pay to borrow the money, expressed as a percentage. On the other hand, the latter includes the mortgage rate, any points, mortgage broker fees, or other charges you’ll pay to get the loan. The APR is normally higher than the mortgage rate.

Factors That Influence Your Mortgage Rate

There are several external and internal factors at play that determine the interest rates on a mortgage loan. They include:

External Factors

The external factors determine the average mortgage rate on the basis of the health of national or international economies. As an individual, you cannot control these factors, and they spell out an average current mortgage rate.

Economic Health and Supply and Demand

The overall economy tends to affect mortgage rates. A growing economy creates competition from those wishing to borrow money, which causes mortgage rates to rise. In a slowing economy, demand will fall, and interest rates will tend to decrease.


Inflation causes the price of goods and services to rise in an economy over a given period. During inflation, your dollar doesn’t stretch as far as it used to. Investors will demand higher rates to compensate for the decrease in purchasing power of money. Therefore, the mortgage rates will be higher.

The Federal Reserve

The Federal Reserve (also known as the Fed) raises or lowers the federal funds rate, which can affect mortgage rates. The Fed rate doesn’t directly impact the mortgage rate, but the markets that affect all the rates.

Internal Factors

The internal factors can vary from individual to individual. They ascertain the mortgage rate on your loan based on your credit history, like your ability and promptness to repay. Thus, you can control these factors.


Mortgage lenders want to feel confident that you will repay your loan. Your credit standing goes a long way in deciding the interest rates on your loan. Lenders are willing to give you a lower interest rate if you have a higher credit score. So it is wise to always (and promptly) repay your loans!

The Type of Home You’re Buying

If you plan to occupy the home as the primary residence, you’ll receive the best mortgage rate. Your rate will be higher if you’re buying a second home or if you plan to rent out the home. Additionally, you’ll likely pay a higher rate if you’re buying a condo or townhome, as opposed to a single-family home.

Down Payment

If you have a bigger down payment, mortgage lenders will see you as less of a risk and likely give you a lower rate. Many lenders prefer 20% down payments, but some can go down to 15% or even 10%. Other lenders might go down even further if you’re using a Federal Housing Administration (FHA) or Veteran Affairs (VA) loan.

Have Questions About Mortgage Rate Factors? We’re Here to Answer!

Since 1936, CENTURY 21 Bolte Real Estate has been the center of one of the largest independent brokerages in North Central Ohio. Catering to all your homeownership needs, whether buying a new home or selling a home, we have a team of nearly 40 licensed, professional agents with a proven track record of both performance and service. Our excellent sales figures and client success rates speak for us!

Whether you are buying your very first home, upgrading to a larger home for a growing family, or looking to downsize for the ease of living, contact CENTURY 21 Bolte Real Estate today, and we are right here to serve you.

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