Mortgage Interest Rates Today – CNET

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Now is the time to get a great mortgage rate on your dream home.

Matt Elliott / CNET

In response to market volatility at the start of the COVID-19 pandemic, the Federal Reserve reduced its benchmark interest rate for the first time in more than a decade, creating a ripple effect in the market. For homebuyers, this has translated into historically low mortgage rates. Now is a great time to study the mortgage rate you might qualify for on a future home.

What is a mortgage rate?

Your mortgage rate is the percentage of interest a lender charges on the loan you need to buy a home. Interest helps cover the costs associated with lending money – and there are several factors that determine the rate you are offered. Some are specific to you and your financial situation and others are influenced by macro market conditions, such as the overall level of loan demand in your region or nationwide.

What factors determine my mortgage rate?

The factors that most often determine a mortgage rate are your credit rating, the location of the property, the amount of down payment, the terms of the loan, and the type of loan.

“Many mortgages are [paid back in 360 payments] over 30 years. Shorter-term loans, like 10, 15 or 20 years, have lower interest rates, ”says Clint Lotz, president and founder of predictive credit technology company TrackStar. “A larger down payment means a lower interest rate; if a buyer can make the 20% down payment that’s fine, but if not, lenders will usually ask the buyer to take out PMI insurance: private mortgage insurance. “

In addition to the length of the loan, the type of loan will have an impact on your interest rate. Some loans have a fixed interest rate for the life of the loan, while others have an adjustable rate, which could result in significantly higher payments over time.

What credit rating do you need to get a mortgage?

Most conventional loans require a credit score of 620 or higher, but the Federal Housing Administration and other types of loans can accommodate lenders with ratings as low as 500, depending on your down payment. If you have a high credit score, you may be offered a lower interest rate and a smaller down payment. Improving your credit rating before applying for a mortgage can save you money even if you are already eligible for a loan.

“Credit is the single most important factor in the interest rates on mortgages and all other loan products. It is therefore essential to ensure that credit balances are below 30% to maximize a credit score, ”says Lotz. “If a person finds errors on their credit report, they should dispute them to ensure the most accurate history.”

What is the annual percentage rate and what does it mean for mortgages?

Your annual percentage rate is a key factor in choosing a mortgage. The Federal Open Market Committee lowered the US prime rate in 2020, which paved the way for today’s relatively low rates: the interest rate offered to you by a lender is based on the prime rate plus the premium that the lender offers. The institution decides to bill you, based on your financial situation.

What is the impact of the APR on capital and interest?

Most mortgages are based on an amortization schedule: you will pay the same amount each month for the life of the loan, although the interest earned will be highest at the start of the loan and will decrease as the principal decreases. (Your amortization schedule will show how much of your monthly payment goes to interest and how much the loan principal pays off.) Ultimately, most borrowers appreciate the convenience of a fixed, predictable monthly payment.

What else can impact my rate?

To get a good mortgage rate, you need to build credit, but also manage it well, including saving for a down payment and keeping additional savings to cover unforeseen expenses.

In most cases, you don’t want to stretch your down payment too much that you find yourself running out of cash when you move into your home, and keeping cash savings can help your lender feel confident in your ability to repay the loan. loan, potentially lowering your rate.

“Banks are very keen on making sure borrowers have enough savings in reserve after closing. A good rule of thumb is six months of mortgage / tax and insurance for loans under $ 750,000 and 12 months for jumbo loans, ”says Melissa Cohn, an executive mortgage banker at William Raveis Mortgage, based in Connecticut.

Keep in mind that credit scoring services like FICO adjust your credit based on mortgage loan applications; Lotz has great advice for those looking for the best rate from different lenders.

“The FICO company allows multiple mortgage applications over a 10-day period to be counted as one,” Lotz explains. “This allows a borrower to compare offers and rates from different lenders, but borrowers need to make sure they are within that one day window or their scores will start to drop due to excess demand.”

Shop Mortgage Rates

Mortgage lenders often post their rates for different types of mortgages online, which can help you find and narrow down the lenders you are applying for pre-approval. Shopping is an important part of the process. And it is often a mistake to rush the process.

“The best price [should be considered] – but equally important, the best service and with a reliable lender who can close the rate promised, “Cohn says.” It’s one thing – especially right now – to get a rate. It is a very different matter to shut it down in time. “

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