Newrez Mortgage Rates
How to Calculate Your Mortgage
This goal not only includes finding a loan that meets your financial needs, but also getting approved for a low mortgage rate. While you can’t control the rates you’re offered during this process, there are ways you can educate yourself ahead of time.
By being informed, you can find the best mortgage rate available to you. Doing your research can also potentially save you thousands of dollars over the course of your home’s repayment.
So, how do lenders determine the mortgage rate you’re offered – and what can you do to ensure that you’re given the lowest rate possible? Read on to learn more.
5 Factors of a Mortgage You Can Control
The good news: There are some factors you can control. These elements are considered by mortgage lenders when underwriting your new loan and determining the rate for which you qualify. Consider improving all or some of them before applying for a mortgage to get the best rate possible.
1. Credit Score
Having a high credit score is a major indicator of creditworthiness. Borrowers with a high credit score are seen as a less risky investment to lenders, which qualifies them for lower mortgage interest rates. In the months or years leading up to a mortgage application, do what you can to raise your credit score as much as possible.
2. Debt-to-Income (DTI) Ratio
In general terms, lenders want applicants to have a DTI ratio of 36% or less. Some lenders will have unique preferences, but a high DTI will always throw up a red flag for lenders and signal a risky investment. This will increase the mortgage rate offering. A DTI higher than 43% could result in a mortgage loan denial.
3. Home Price
A Jumbo Loan is often required to finance more expensive homes, which includes homes with prices exceeding the FHA conforming limit of $548,250 as of January 1, 2021 for most of the U.S.
4. Loan-to-Value (LTV) Ratio of Your Home
The Loan-to-Value, or LTV ratio is an indicator of your home’s value versus your actual loan amount. You can lower this factor by buying a home below market value and/or making a larger down payment at purchase. The higher the LTV ratio, the riskier the investment is for lenders, and therefore the mortgage rate offered will be higher.
5. Mortgage Loan Term
Lenders tend to offer different rates based on your chosen loan terms. For example, 15-year mortgages will usually have lower rates than 30-year mortgages because the length of the loan is shorter. Another example is variable interest rate loans tend to have lower rates at the outset than their fixed-rate, more predictable counterparts.
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3 Factors of a Mortgage You Cannot Control
There are three major factors that contribute to your mortgage rate you can’t control. These include:
The Federal Reserve doesn’t set mortgage interest rates but it does determine the federal funds rate. The federal funds rate provides lenders with a benchmark for the interest-based products they provide. This includes mortgages. Depending on which way the Fed trends, mortgage rates are likely to follow.
2. Inflation
Inflation has a direct and cyclical relationship with mortgage rates. In a vicious cycle, mortgage rates will climb as inflation does. As mortgage rates climb, inflation will be further affected.
3. Location
Based on factors such as foreclosure laws and differences in population, mortgage lenders may offer slightly different rates from state to state. While you may have some control over the area in which you choose to buy your home, there are several reasons that this is a hard subject to concede on. If your job, family, etc. limits your ability to relocate, you can be stuck with paying higher rates simply because of where you live.
Mortgage Savings Calculator
While there are many factors at play regarding your mortgage rate, there are some factors you can control. By working to improve the factors in your control, you can often lower your mortgage rate by a significant amount. Even dropping your rate by a quarter of a percent can save you tens of thousands of dollars during the course of the repayment of your mortgage.
Check out what your mortgage savings could be with our Mortgage Estimator.