What are some factors that influence mortgage rates?


Quick Answer

Factors that influence a person's mortgage rate when buying a home include a credit score, home price, loan amount, loan term and type of interest rate, according to the U.S. Consumer Financial Protection Bureau. Economic factors may influence mortgage rates from banks in general, such as the state of the economy, government policies and demand from investors, notes Forbes. Lenders have the final say in terms of a mortgage rate for customers who want to take out a home loan.

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Full Answer

A credit score comes from items on a report that show someone's credit history, says the CFPB. Usually, a higher credit score means a lower interest rate for a mortgage. Larger loans or very small loans may have higher interest rates, while a larger down payment placed on a home generally lowers an interest rate. Lenders may view a customer as a lower risk when a higher down payment goes on the property, since the homeowner has a higher personal stake in the real estate. Shorter loans usually have lower interest rates than longer loans, but shorter loans have higher monthly payments.

A slow economy may lower interest rates because households and businesses do not seek out loans as readily, according to Forbes. The U.S. Federal Reserve may institute money-borrowing policies to banks that raise or lower interest rates for mortgages. Investors may see homes and real estate as a safer asset than stocks, bonds and commodities, meaning interest rates may remain low to keep investment dividends flowing.

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