What Determines Mortgage Rates

By Jason Gelios REALTOR®/Author  |  8 Min. Read

There are many factors that determine what mortgage rates will be. In this brief article I share the most common factors that set the rates.

Factors you can control

Credit score
Credit scores can play a huge part in what mortgage rate will be offered. The lower the credit score the higher the interest rate. This is due to the lender viewing a lower credit score as higher risk.

Loan To Value Ratio (LTV)
Loan to value ratios are based on how much a borrower will need a loan for against what down payment or equity is available. For example, a home buyer could purchase a home for 80% LTV meaning they are putting 20% down. A current home owner looking to refinance could have 20% equity in their home. Therefore obtaining an 80% LTV mortgage.

Type of mortgage you are getting
Lenders often increase the rate due to the type of mortgage you are getting. If a current home owner is looking to get cash out when they refinance, they will pay a slightly higher rate.

Factors you can’t control

Overall economy
The state of the economy plays a huge role in where mortgage rates are. Typically mortgage rates tend to be better when the government wants to stimulate the economy.

Inflation
Inflation oftentimes sends mortgage rates higher. Your parents have probably told you how the dollar isn’t worth as much as it was years ago.

Job growth
Mortgage rates are very much ties to how the job market is doing. This is a great indicator of how mortgage rates will be because when the job market is great, people tend to purchase more.

Other factors that play a part in what mortgage rates will be are things like retail sales,
home sales, etc.
 
Jason Gelios is an award winning top producing REALTOR®/Author with Community Choice Realty in South East Michigan. Author of the real estate book ‘Think Like a REALTOR®: A little book about buying and selling residential real estate through the eyes of a REALTOR®. (Click here to buy)
 
Creator of The AskJasonGelios Real Estate Show, Jason educates aspiring home buyers, sellers and existing home owners tips and real world knowledge to help achieve their real estate goals.  Jason is also a local speaker educating home buyers on the process of purchasing a home.