The following key factors can affect mortgage rates today - factors you should consider when shopping for a loan.
Lenders place significant importance on your credit scores because they're one way to determine you're reliability in paying off the loan. The general rule of thumb says that the higher your credit score, the lower the interest rate you'll receive.
Credit scores consider your credit history - including credit cards, loans, and payment history.
The amount you spend on your down payment is essential because the larger your down payment, the lower your interest rate.
Also, remember that a larger down payment means a lower overall cost to borrow and should save you money over time.
Mortgage rates today can vary state by state and whether you live in a rural or urban area.
A home's price affects your mortgage interest amount because the formula for how much you need to borrow includes the home price minus your down payment plus closing costs.
Type of interest rate
There are two basic types of interest rates - fixed and adjustable.
A fixed loan rate is one in which what you pay at the beginning of your loan is what you'll pay for the duration of it.
Adjustable interest rates may be fixed at the beginning of the loan but then go up or down depending on the market. While the initial rate of an adjustable loan may be lower at the beginning, it may increase significantly in the future.
Your loan term refers to how long you have to repay the loan. In most cases, shorter-term loans have lower interest rates and overall costs but higher monthly payments.
There are several categories of loan types, including conventional, FHA, USDA, and VA loans. Rates can vary depending on the type of loan.
Conventional loans meet - or conform - to the requirements of Freddie Mae or Freddie Mac, which are government-sponsored entities that buy mortgages from lenders and sell them to investors.
Backed by the Federal Housing Administration, an FHA loan accepts lower down payments and credit scores than conventional loans. In turn, that makes them popular for many first-time homebuyers.
VA loans are backed by the Department of Veterans Affairs and don't usually require a down payment. They also have lower interest rates than many other types of loans.
Anyone who served in the Armed Services may qualify for a VA loan if they meet specific requirements, such as having 181 days of active service during peacetime or 90 consecutive days of active service during wartime.
Spouses of service members who lost their lives in the line of duty or because of a service-connected disability also are eligible for VA loans.
Designed for rural homebuyers, USDA loans don't require a down payment. They're specifically for buyers who don't have much income or savings and can't get a traditional mortgage.
Factors That Determine Mortgage Rates
While you can do things to get a better mortgage loan rate, other factors are out of your control. Your credit score and type of loan, for example, are in your control, but more considerable forces are at work, as well, regarding mortgage rates today.
The Federal Reserve
While the Federal Reserve doesn't set mortgage rates, it influences them.
The Fed - the central banking system of the United States - controls short-term interest rates by increasing or decreasing them based on the overall strength, or lack thereof, of the national economy.
The prime mortgage rate usually follows suit when the Fed changes interest rates. The prime rate represents the rate that banks borrow from one another.
The Prime Rate
Banks set rates for different loans, such as credit cards, following the prime rate. The prime rate can affect specific mortgage rates, such as variable mortgages. Each bank sets its prime rate.
The Bond Market
Bonds are a type of loan with a strict repayment timeline to its maturity and are typically used by companies and governments. While the bond market is historically reasonably stable, the long-term value of mortgage bonds is decreasing due to rising inflation.
Mortgage bonds are mortgages bundled together and sold in the bond market. Bonds affect mortgage rates depending on their demand. When the demand is high - usually when the stock market declines - those rates increase and decrease when demand is low.
There's a direct correlation between inflation and mortgage rates - when the cost of goods and services increases (inflation), mortgage rates rise.
An institution such as the Federal Reserve will raise interest rates to slow the economy down in response to rising inflation.
Mortgage Backed Securities
While mortgage-backed securities are similar to bonds, the payments to investors come from the mortgages that underlie the bond. Institutions such as Fannie Mae and Freddie Mac buy loans from lenders, then structure them to pay interest into a mortgage-backed security.
When mortgage-backed securities prices drop, mortgage lenders typically increase interest rates. When MBS prices rise, lenders lower interest rates.
The overall health of the economy impacts interest rates. When the economy struggles - such as during the early days of the COVID-19 pandemic - interest rates are kept low in hopes that people will borrow and spend money.
Secured Overnight Finance Rates
The SOFR refers to a method by which banks lend money to one another - precisely, overnight borrowing.
Like the prime rate, the SOFR is one factor that impacts the bottom line of banks and the mortgage rates they can offer.
The Constant Maturity Treasury Rate
These rates - also called CMT rates - refer to the yield calculated by average yields of various U.S. Treasury securities (with different maturity periods) while adjusting for different periods.
Some lenders use the CMT rate to calculate the interest for adjustable-rate mortgages. The bottom line is that interest rates rise when the CMT goes up.
Getting a Better Mortgage Rate in Escambia County, Florida - Things You Can Do
As interest rates rise, getting the best rate on your next mortgage is essential. While mortgage rates today depend on a variety of factors, the good news is that there are things you can do to get a favorable rate.
Putting more money down
Making a larger down payment on your home can help you to get a lower mortgage rate.
Something to consider is that putting at least 20% down can save you money in various ways, including that you won't have to pay private mortgage insurance (PMI). PMI typically ranges from 0.05% to 1% of the loan amount.
Putting more money down also means less risk for the lender.
Improving your credit score
Lenders place great importance on your credit score while considering your mortgage loan rate. The higher your credit score, the better the mortgage rate. In turn, lenders trust that you won't default on the loan.
What are some ways you can improve your credit score? Paying your bills on time and paying down or eliminating credit card balances helps.
Also, check your credit score regularly to ensure there aren't any mistakes on your report.
Have a strong employment record
Lenders prefer borrowers with a steady work record, especially proof of two years of continuous employment and earnings. They usually ask for pay stubs from at least 30 days before applying for the mortgage and W-2s from the previous two years.
It's tougher to get a favorable mortgage rate if you have significant gaps in your employment history, i.e., extended periods of unemployment such as six months or more.
The lower your debt-to-income ratio, the better. Your DTI compares your monthly debt payments with your gross monthly income. A higher DTI means putting more of your income into loan payments.
It always pays to shop around when seeking the best mortgage rates today. Even getting one additional quote can save you money.
Lock in your rate
Locking in your mortgage rate after you've secured the loan and signed a home purchase agreement can save money because the closing process may take several weeks, and rates may fluctuate.
Ask your lender if you can lock in your rate before closing. It may require a fee, but you can also save money in the long run.
Why Are Interest Rates Rising?
The stakes are high, not only for the U.S. economy but also for consumers and businesses. It's no secret that interest rates in the U.S. have increased. The Federal Open Market Committee, which determines policy for the Fed, has various reasons for raising rates.
And, as mentioned, they influence mortgage rates today.
What is inflation? In simple terms, it's a rise in the price of consumer goods and services. The increase in prices means that currency buys less than before. Inflation is a significant reason why the Fed raises interest rates.
Most economists agree that sustained inflation occurs when the nation's money supply growth exceeds economic growth.
Lenders demand higher interest rates to compensate for the decrease in purchasing power of the money they'll make in the future.
The biggest challenge the Fed faces in raising interest rates to curb inflation is not to raise rates so high that the result is a recession.
Supply & Demand
Another reason for rising inflation is the supply and demand of credit. Increased demand for money or credit raises interest rates, while a decreased demand has the opposite effect.
When people open a bank account, they lend money to the bank. The bank can then use the funds for its investment and business activities and, as a result, lend them to other customers. The more banks lend, the more credit is available in the economy.
The credit decreases when lenders defer repayment of the loan. For instance, when you postpone paying your credit card bill until next month, you increase the interest you must pay while decreasing the amount of credit in the market.
In turn, there's an increase in interest rates in the economy.
The Federal Funds Rate
The interest rate on money banks lend is affected by the federal funds rate, which is the rate institutions charge each other for short-term loans. That rate then influences other short-term interest rates.
The Fed influences these rates by buying or selling previously issued U.S. securities. Banks have more money they can use for lending when the government buys securities. Interest rates decrease as a result.
The opposite - rising interest rates - occurs when the Fed sells securities, which depletes banks' funds for lending.
The bottom line is that a mortgage rate is a primary consideration when you're looking to buy a new home via a mortgage loan. It always pays to shop around when looking for the best rate, while there are things you can do to get a better rate.
Things To Do in Escambia County, Florida
There are plenty of things to do in Escambia County, whether you're a new homeowner or a visitor who wants to see what the area offers.
Perdido State Park - You'll enjoy the white sand beaches and rolling dunes of Perdido State Park, a favorite destination for swimmers and sunbathers. Anglers of all skill levels will enjoy surf fishing.
Fort Pickens - Fort Pickens is a historic U.S. military fort located on Santa Rose Island in Pensacola. The fort was built in 1834.
Pensacola Museum of Art - Founded in 1954, the Pensacola Museum of Art serves as an art and culture center downtown Pensacola.
Pensacola Blue Wahoos - Enjoy the national pastime by attending a Blue Wahoos game at Admiral Fetterman Field. The Blue Wahoos are a minor league affiliate of the Miami Marlins.
- Tarkiln Bayou Reserve - The Tarkiln Bayou Reserve features a variety of rare and endangered plant species, as well as rare animals such as the alligator snapping turtle.