Mortgages are available in many broad categories: VA loans, FHA loans, USDA loans, and conventional mortgages. Moreover, all loans have different eligibility requirements, including specific interest rates. The loan you choose will determine the interest rate you'll pay.
Mortgages have different loan repayment periods ranging from 10 to 30 years. It all depends on your preferred duration when applying for the loan.
Generally, a shorter loan term has a lower interest rate, with higher monthly payments. A longer loan has a higher interest rate, lower monthly payments, and higher overall costs.
Type of Interest Rate
Mortgages have two main types of interest rates; fixed and adjustable. While fixed rates remain constant through the loan repayment, flexible rates may occasionally change due to market trends.
For instance, if you opt for a flexible loan interest rate, your initial rate may be lower but increase as you continue paying the loan.
Banks are keen on knowing whether the home you're buying is your primary residence, secondary home, or commercial investment.
Therefore, your interest rate will likely be lower on a primary residence since lenders believe you'll make prompt payments to retain the property. On the other hand, lenders will charge a higher interest rate for a commercial property to compensate for the increased risk of loan default.
Loan-to-Value Ratio (LTV)
The LTV is the ratio of your down payment to the total loan amount. A lower down payment translates to a higher LTV ratio; hence lenders charge a higher interest rate to compensate for the risk of default.
Let's say you pay 3% upfront on a $200,000 loan, your deposit would be $6,000, and the lender would assign a high-interest rate. On the other hand, if you pay 20% upfront, your deposit would be $40,000, attracting a lower interest rate for the same loan.
Your credit score is a critical factor in determining the mortgage rate. Generally, a higher credit score guarantees a lower interest rate, while a lower score may attract a higher interest rate.
Since most lenders use the score to predict your reliability in loan repayment, a higher score portrays you as a low-risk borrower. Lenders, therefore, will assign you a better interest rate since you're less likely to default on the loan. Similarly, if you pay bills on time and don't default on your previous loans, you build a solid credit report and subsequently a good credit standing.
Determining your minimum credit score depends on your preferred loan program. For instance, if you opt for an FHA loan, a credit score of 580 would be ideal, thanks to government backing. Similarly, a conventional mortgage requires a minimum score of 620.
Most conventional mortgages require borrowers to pay at least a 20% down payment when buying property. The down payment is a percentage of the loan amount you pay upfront before getting the loan. However, if you can't pay at least 20% upfront, you'll need to purchase private mortgage insurance (PMI) to cushion the lender against loan default.
Generally, a larger upfront payment attracts a lower interest rate since lenders bear a minor risk of loan default if you have a stake in the property. For this reason, most lenders want you to invest a portion of your funds in the home you wish to buy.
The price range for the home you wish to buy can significantly affect your interest rate. Typically, the loan amount should be sufficient to cover the actual price of the house and the accompanying closing costs.
Depending on the home price, you may apply for a government-backed or conventional mortgage, which all have different interest rates.
Mortgage lenders may offer you varying interest rates depending on the state in which you live. Generally, states like Alaska and Hawaii have higher loan interest rates due to higher average living costs. Similarly, loan rates for urban residences are higher than rates in rural and suburban locations.
Before applying for a mortgage, you may compare rates from different lenders depending on whether you want a rural or urban property.
Why Interest Rates Are Currently Where They Are in Flagler County, Florida
A combination of personal factors determines loan eligibility and the interest rate for paying the loan. However, it all starts with the current market rates and economic trends.
For instance, if borrowers can afford higher loan amounts, interest rates may be high. Similarly, a dwindling economy calls for lower interest rates since few borrowers can take loans.
Below are the top market forces that drive the current interest rates:
The Federal Reserve
Contrary to what most people believe, the Federal Reserve doesn't set mortgage interest rates. Instead, they regulate loan interest by increasing or decreasing rates based on the country's economic state.
Typically, the Federal Reserve adopts a policy that stipulates the minimum amount a bank must have in cash when closing the books each day. Based on the policy, banks can borrow funds from each other at a defined Federal Funds rate.
Moreover, the Federal Reserve closely monitors the fund's rate to regulate the money supply in the country. For instance, when the economy is struggling, they lower the rate to cushion banks against losses and increase the rates when the economy thrives.
Raising the Federal Funds rate doesn't directly increase loan interest rates. However, when the fund's rate increases, commercial banks eventually increase their lending rates to compensate for the cost of borrowing from the Federal Reserve.
Inflation substantially impacts critical financial investments, including treasury bonds, mortgages, and conventional loans. A sharp rise in inflation reduces the return on investment in a fixed mortgage. For instance, a 2% rise in inflation will yield a return of only 4% for a mortgage with a 6% interest rate.
For this reason, mortgage rates will drop or increase when inflation drops or rises. Moreover, if banks anticipate a future decline in inflation, mortgage rates will equally fall.
Mortgage rates largely depend on the country's economic performance. For instance, if there's a high unemployment rate, mortgage rates will increase since many people have higher buying power. On the other hand, poor economic health triggers a decrease in the local lending rates.
The Bond Market
Mortgages are tied to the capital markets where investors trade on mortgage bonds. For this reason, mortgage bonds determine the lending rates depending on demand.
Typically interest rates increase when demand for mortgage bonds increases and decrease with a decrease in mortgage bond demand.
The Constant Maturity Treasury (CMT) Rate
The Federal Reserve calculates a financial yield based on an average yield from various Treasury yields. Calculating the CMT rate involves sampling yields from different maturity periods and applying an average yield for other subsequent trading periods.
Since some mortgage financiers apply the CMT rate when issuing adjustable mortgages, all associated interest rates will rise when the CMT rate rises.
Ways To Get a Better Rate in Flagler County, Florida
Although interest is inevitable in every mortgage, you can take advantage of low-interest rates and save extra cash for other uses. Luckily, there are effective strategies you can employ to get the best rates.
Here are a few ways to get a better interest rate:
Put a Significant Down Payment
Putting more down payment can help you negotiate a better interest rate, particularly if you have adequate cash to pay 20% or more. In addition, putting down a significant portion of your investment in the property lowers your LTV ratio.
Lenders with a low LTV ratio and a higher down payment will ultimately consider you a low-risk borrower.
Upscale Your Credit Score
Your credit score gives an open clue about your ability to repay the loan as expected. For this reason, mortgage financiers view individuals with low credit scores as high-risk lenders, charging interest on the higher end.
On the other hand, when you apply for a mortgage, a higher credit score will attract a lower interest rate since lenders acknowledge you'll pay the whole loan on time.
An excellent way to boost your credit score is to settle all outstanding bills, such as utilities. You could also reduce your debt burden by clearing pending loans and disputing inaccuracies on the credit reports that may lower your score.
Opt for a Shorter Loan Term
You can save considerably by shortening your loan term. For instance, if you have a 30-year loan term, you can negotiate the repayment period to 15 years.
Shortening the loan term guarantees a lower rate since lenders won't roll out anticipated inflation over an extended duration. Although your monthly payment would be higher, you'll clear the loan faster than you would take to pay it in 30 years.
Pay Discount Points
A discount point is a small fee you pay when closing the loan contract to help cut down the interest rate. Discount points work best if you have a more extended repayment period, say, 7 or 9 years.
Usually, a single discount point represents 1% of the loan amount, effectively reducing the interest rate by at least 0.25%. For instance, if you take a loan at an interest of 4.5%, you can pay $2,000 for discount points to reduce the rate to 4.25%.
Improve Your Debt-to-Income Ratio (DTI)
The DTI is a fraction of the gross monthly income that settles your debt obligations, including rent, utilities, credit cards, and other debts. Generally, a maximum DTI of 43% can help you qualify for a mortgage. Despite this, a higher DTI could still guarantee you a mortgage but at a higher interest rate.
An easy way to boost your DTI is to increase your income so you have adequate cash to settle monthly debts and run daily expenses. You could also reduce debt accumulation by promptly paying your monthly obligations.
Compare Different Mortgage Rates
Many financial institutions offer mortgages at different lending rates and eligibility requirements. With many lenders competing for customers, you can compare lending rates from various mortgage financiers.
For instance, you can request an estimate from at least three lenders with details on the interest rates, closing costs, and loan terms. That way, you'll settle for a single institution offering the most competitive offer.
Consider Loan Buyer Programs
Some financial institutions have attractive incentives that help first-time and repeat buyers reduce their home buying expenses.
Loan buyer incentives may target specific professionals such as veterans, while others may be restricted to particular geographic locations. Such programs include down payment assistance, tax breaks, favorable interest rates, and much more.
It is therefore advisable to find out if your lender offers such attractive perks and if you're eligible for the programs.
Top 5 Activities for Children in Flagler County, Florida
Flagler County is a small beachfront community in Northeastern Florida. The county derives its name from Henry Flagler, a key worker during the Florida East Coast Railway construction.
Since its inception in 1917, Flagler has been a beehive of activities, attracting visitors worldwide. A tour of the coastal city allows you to explore the pristine beaches, fishing waterfronts, beautiful parks, and biking trails, among other fun-filled activities.
Here are the top 5 activities your kids may try out in Flagler County, Florida:
Sightseeing at the Flagler Beach Pier
The Flagler Pier has been an iconic landmark, hosting fun day activities since 1928. Here, kids can walk along the 800 feet water stretch, collecting shells and viewing marine life.
In addition, kids can try beach fishing with the assistance of their parents and beach guides. If you have no fishing gear, worry not. The bait and tackle shop is always open for first-timers to buy fishing equipment and beach gear.
Relaxing at the Gamble Rogers Memorial Area
The Gamble Rogers Memorial Area hosts an iconic beach suitable for swimming, sunbathing, fishing, and beach-related activities. While at the park, you can hire a canoe or kayak at the park or come with your watercraft for a day-long aquatic adventure.
The park also has plenty of space for picnics, birthday parties, family day-outs, or a weekend adventure.
Biking at the Flagler Beaches Community
Flagler County is home to great miles of biking trails. If your kids love cycling, you can be sure to find a challenging biking trail to drain some sweat.
Most trails feature a combination of steep climbs, rocky surfaces, and smooth paths, suitable for different levels. For instance, the St. Joe Walkway at Palm Coast Linear Park has a paved trail with plenty of opportunities to view wildlife.
Swimming With the Dolphins
One of the most memorable experiences to give your kids in Flagler County is an opportunity to swim with the dolphins. Marineland Dolphin Adventure offers the perfect spot for beach swimming alongside the dolphins in a friendly aquatic park.
Here, kids touch the bottlenose dolphins and hold their fins while riding in the calm waters.
Horseback Riding at the Equestrian Adventures
A horseback ride along the beach is one of the most thrilling adventures in Florida. Flagler County has an incredible beachfront forming an ideal location for a horseback ride. You can treat your kids to a guided ride at low tides and explore Florida's beauty in sunny weather.
Mortgage Rates in Flagler County - Bottom line
Mortgage interest rates significantly contribute to the overall loan cost when buying a home. That's why understanding the factors influencing loan interest can help you get the best rate and save substantial cash.
Although you can't control market forces, you can negotiate affordable rates through effective financial strategies. You can save a substantial down payment, improve your credit score, purchase discount points, or opt for a shorter loan term. Better still, you can shop in different financial institutions to see who offers the best rate.
Consult an approved mortgage lender for more advice on loan interest negotiation.