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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.
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.
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.
Fixed rate vs. adjustable rate mortgage: which is best for me?
With a variety of loan types to choose from, many are designed to suit different mortgage needs. Four of the most common types include fixed rate mortgages, adjustable rate mortgages (ARMs), FHA loans, and VA loans. Read on to learn more about each of these loan types.
Federal Housing Administration (FHA) Loans can help homebuyers who do not or cannot make the traditional 20% down payment and/or have a lower credit score finance a home. With an FHA loan, you can put down as little as 3.5% at closing.
VA loans are reserved for veterans, active-duty personnel, reservists, National Guard members, and sometimes surviving spouses. This loan requires no down payment and an ability to buy with a less-than-perfect credit score.
Fixed Rate Loan
Fixed rate loans are the most common loan option, and the most sought-out by borrowers. As suggested in the name, the rate stays the same throughout the lifetime of your loan. Many borrowers will start out with a 30-year fixed loan, but there are other options such as 25-, 15-, and 10-year loan options.
Fixed rate loans offer affordable and competitive interest rates that keep borrowing costs low. They’re also predictable and budget-friendly as borrowers enjoy the same locked interest rate for the entire term of their mortgages. They’re also very straightforward and a great option for homebuyers who would benefit from uncomplicated loan terms and paperwork.
ARM Loan Options
Adjustable Rate Mortgages (ARMs) boost your buying power with lower rates and flexible terms. This type of loan gives you a lower, fixed interest rate for the initial 5, 7, or 10 years. After the loan term, your rate and monthly payment can change annually based on current interest rates during specified intervals following the initial fixed period.
For example, a 5/6-month ARM interest rate is fixed for five years and then can be adjusted at the end of the initial 5-year term and every six months after that for the remaining term of the loan. Newrez offers a wide variety of ARMs to fit your unique needs, including 5/6-month, 7/6-month and 10/6-month ARMs.
It is beneficial to consider ARMS for several reasons. First, ARM loan options generally offer the lowest mortgage rates possible. 7/6-month ARM rates are typically significantly lower than 30-year fixed rate mortgages. The 7/6-month ARM rate would be fixed for seven years, potentially saving you money that you could use to pay off other debt, add to your retirement savings, etc.
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Another reason to consider an ARM is if you plan to sell your home in just a few years. If you intend to sell your new home before the loan adjusts, you may be able to save money with an ARM over a fixed rate loan. For example, if you know that you’ll be switching jobs soon or getting transferred to a new area, an ARM would be the better option. Because ARMs have low initial rates, they can be a better option for mobile professionals, homeowners who plan to upsize or downsize, and anyone who will live in their home for the short-term.
Finally, an ARM is a great option if you want more house. By applying for an ARM, you could qualify for a higher loan amount and be able to buy a home with a larger price tag.
Now that you have the information and the tools to make an educated decision, there is only one thing left to do: start saving for that down payment! Reach out to our team of mortgage professionals to get started.
What Else Should I Look at Beyond the Interest Rate?
It’s finally time…you’ve decided to hit the gas and either purchase a home or refinance your current one. Congratulations! The next step may be to find a Loan Officer to help you through the next steps and get you to the closing table soon. Don’t be afraid to ask questions about the details of an offer before applying.
Explore Your Rate
At Newrez, we create an offer for you based on several factors and always strive to give you the best rate possible.
Lenders often use points – or fees that borrowers must pay at closing. One point equals one percent of the principal amount of a home loan. For example, if the mortgage is $250,000, one point is equal to $2,500. Lenders will increase the number of points in order to lower the rate so the offer looks better than a competitor’s might, but at closing it often equals out. When factoring in a rate and APR with the impact of points, lower closing fees are a result of a higher rate while higher closing costs come with a lower rate. Take time to ask questions about the details of your loan offer and reach out to your Loan Adviser if you need more clarification about your loan.
There are scenarios in which points are beneficial to borrowers, especially if rates increase in the early life of a loan. However, this would be hard to predict as it would depend on a borrower predicting that a rising rate environment was on the horizon and planning accordingly at the time that the home was bought.
Come Prepared and Educated
As with any large purchase, you will likely come across an offer that seems too good to be true. For example, a lesser-known lender could be advertising substantially lower rates than their more reputable counterparts. In these circumstances, it’s important to understand not only the rate, loan structure and term, but also the fees and subsequent costs involved. Insist on transparency from the lender and come prepared with questions to avoid surprises at closing.
View our other articles about mortgage terminology and be sure to ask the lender about secondary items, such as lending and appraisal fees, as well as title services and lender title insurance costs. Make sure you read the loan estimate thoroughly and clarify anything that is unclear before signing any paperwork.
Continue to ask questions of your Loan Officer, even if this isn’t your first time going through the mortgage loan process. Do your research, identify all costs, and ask questions about anything that isn’t immediately clear to you.
What Goes into a Mortgage Payment?
When looking into buying a home, there are three mortgage factors that should be in your notes: the closing cost, the monthly payments, and the rate. Mortgage rates are an important part of understanding what a mortgage is. The lower your approved rate, the less you’ll spend on the home as you pay back your loan.
These savings can be extremely significant, even with a small percentage decrease. For example, on a $250,000 mortgage, a 0.25% rate reduction could save you nearly $13,000. Reduce that rate by half a percent, and you’re saving over $25,000. By being informed about what goes into your mortgage rate, you can stand to save some serious cash. So, what are some other things to keep in mind as you move forward? Read on to learn more.
What is a Mortgage?
A mortgage is a loan for real estate. Just like any loan, you need to apply and be approved before you can borrow money from a lender – such as NewRez – which you will pay back over a set number of years.
Lenders want to avoid a risky investment and will examine a number of factors before you can be approved or rejected for a loan. These items include your income, credit score, and debt-to-income ratio.
Since your repayment of the loan is monthly, the lender will make sure that you have sufficient and consistent income to pay your bill each month. They will require documentation, which can include the last two years of W2’s, current pay stubs, and your last two federal tax returns.
Your credit score is available to most lenders and will give them an idea of your financial responsibility and history of paying off debts. A credit score of 740 or above will usually put you in fine standing to be approved. However, a lower score can mean a higher interest rate or even a turndown of the loan.
Finally, debt-to-income ratio, or DTI, will be taken into consideration. This is a calculation of your total gross monthly debts or payments divided by your total gross monthly income. The lower this number is, the less risky you are to lenders. This means eligibility for a lower rate and approval. If your number is high, it’s recommended that you pay off larger debts as soon as possible or increase your income.
What Costs are Included in My Monthly Mortgage Payment?
Your mortgage is comprised of several elements, including principal and interest, and possibly taxes and insurance. There are also other costs and expenditures to consider, like the down payment.
Your down payment, like other loans, is the amount you pay up front. Unlike other loans, though, this is generally 20% of the property’s cost. This is sometimes flexible, and there are many lenders that allow for less down at closing or allow you to put down more money if your credit is less than perfect. If you don’t have 20% to put down, you may need private mortgage insurance (PMI), which your lender can arrange. This protects the lender in the event that you default on your loan.
The principal is the amount of money the lender will loan you. This money is not loaned for free and is charged with a rate called “interest.” The interest percentage you’ll be charged is determined before closing and may stay the same or fluctuate over the course of your loan depending on the type of loan you’re approved for.
You will pay property and school taxes once you own your home. These go toward things like your city, school district, and road construction. Another element that goes along with homeownership is insurance. There are several types of insurance, including homeowner’s insurance. This protects your home and family against damage and/or loss in the event of a fire, theft, or other emergency.
A mortgage can seem complicated, but Newrez is here to help you feel confident in the entire process from start to finish.
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