Factors that Drive Mortgage Rates
Of all the factors that play a central role in determining mortgages, you only have control over the personal ones. Lenders tend to consider these personal factors to determine if you are a fit borrower for a home loan. The better your factors, the better the mortgage rate you can qualify for.
We'll start with the market factors affecting interest rates on home loans. The economy generally affects the mortgage rates today. This means that if the economy seems to be at its peak, mortgage rates follow suit and vice versa.
Market Factors Affecting Mortgage Rates
Market factors like the Federal Reserve, inflation, and the economy's health shouldn't be overlooked as some of the most considerable driving forces for interest rates.
You should also know how mother market factors such as Constant Maturity Treasury, Secured Overnight Finance Rate, and the bond market affect the rates.
The Federal Reserve
A common misconception in the mortgage market is that the Federal Reserve is responsible for setting mortgage rates. The truth is that the Fed only influences these rates by decreasing them or increasing them to reflect the present state of the economy. Also, changes in the Fed rates usually result in mortgage interest rates.
The role of the Federal Reserve, among others, is to manage short-term interest rates to control money flow. A struggling economy will result in the Fed lowering the rates and giving lenders low rates on loans. Consequently, the Fed tightens up money flow when the economy is at its peak, leading to an increase in the Fed rate and a similar response to mortgage rates.
The Secured Overnight Finance Rate (SOFR)
SOFR is an interest rate determined by banks' overnight costs when borrowing finances. SOFR is increasingly gaining popularity as a convenient replacement for the phased-out London Interbank Offer Rate. It helps lenders set the prime interest rate on a mortgage, depending on its type.
The Bond Market
The prime rates on home loans have stronger ties to the bond market than the 10-year US treasury note. This is because mortgage bonds and mortgage-backed securities exist as mortgage bundles sold to investors in the bond market.
High demand for mortgage bonds will mean the stock market is performing poorly. It will also increase mortgage rates.
The Constant Maturity Treasury Rate
CMT rates refer to yields calculated by considering the average yields of various types of US Treasury securities (which all have different maturity periods) and using them to adjust for specified periods.
They help determine the interest for special mortgages, such as the adjustable-rate mortgage for some lenders. In this case, a high CMT rate will result in a spike in the mortgage rates.
The Health Of The Economy
Interest rates on home loans depend on the current state and outlook of the economy. An economy's peak performance will have high spending and low unemployment rates, resulting in high mortgage rates.
Consequently, poor-performing rates will have a low demand for oil and high unemployment rates, resulting in low-interest rates on mortgage rates.
Inflation is a crucial determinant for most interest rates charged on loans. An increase in inflation will translate to an increase in mortgage rates for lenders to keep up with the overall value of the dollar. On the other hand, low inflation may make the mortgage rates slightly fluctuate or stay the same.
Personal Factors Affect Mortgage Rates
Apart from the market factors discussed above, certain personal factors play a role in mortgage interest rates. Luckily, they are all under your control and can be improved before you begin the loan process.
Here's a breakdown of each personal factor that affects mortgage rates.
A high credit score is a sure way of demonstrating your ability to pay bills on time and not overextend your credit. Lenders will even consider you a borrower with a reduced mortgage default risk once they make a hard inquiry on your credit.
With the low-risk borrower privilege, you may qualify for a better mortgage rate closer to the ones advertised by the lender. However, being a high-risk borrower will have the opposite effect on your loan application.
By making a sizable down payment, you'll assure lenders of your commitment to invest in the home. The down payment amount will also suggest that the lender isn't offering you 100 percent of the funds as a home loan.
And the more money you invest in a home, the less likely it is to default on the mortgage. Putting down more than 20 percent can thus help get you a competitive interest rate on a home loan.
Loan-To-Value Ratio (LTV)
Your LTV is the sum of your down payment amount compared to the total loan amount. A higher LTV may be brought about by a lower down payment and can be detrimental to your loan application. It'll also make lenders consider you a high-risk borrower and give you a higher interest rate.
While you may qualify for a mortgage when looking to purchase an investment property or second home, your finances need to be in order.
Lenders in the mortgage market need to know whether the home you intend to purchase will be a second home, an investment property, or a primary residence. To them, you are likely to make the required loan payments on time since you wouldn't want to lose the home.
The Dynamics Behind Interest Interest Rates on Mortgages
The most common question in most borrowers' minds is, "what moves mortgage rates?" Since we've already discussed the personal and economic factors driving mortgage rates, in this section, you'll understand the key players in the dynamics surrounding mortgage rates. You'll also want to know what's currently going on with these rates and what makes them rise or fall.
Most funds used to facilitate mortgage programs come from capital markets, with deposits from brokerages and banks accounting for only a tiny portion of these funds. Capital markets are where investors show interest in buying various types of debt instruments, particularly bonds.
Bond sellers avail versions of the debt instruments with varying return and risk structures over a specified time frame to attract and sell these debt instruments. These offerings, in turn, compete with similar investments such as foreign, corporate, and US Treasuries.
What's the Catch Here?
One exciting part of the capital markets is that investors that purchase the debt instruments expect favorable returns on their investments, while borrowers seeking mortgages demand low-interest payments. Also, investors may threaten to take their money elsewhere if the returns seem low, while borrowers may consider other mortgage options if the rates aren't favorable.
The investor demand in the capital market drives mortgage rates as sellers of various debt instruments compete for investor funding. And if these demands rise or fall, sellers need to make specific changes to attract investors. The best way to attract investors is to raise interest rates, leaving borrowers with high-interest rates on their loans.
Ways to Secure an Attractive Rate on a Home Loan in Holmes County, Florida
The purpose of low mortgage interest rates is to make homeownership incredibly affordable. Through the competitive rates, you can build equity, pay less interest, and have a place to call your own. To get there, here are some of the steps you need to take:
Improve Your Financial Health
Improving your financial health can position you as a better-qualified borrower to lenders. It means taking steps to get a high credit score. These steps include paying down debt, asking creditors about eliminating bad marks on your score, and increasing your credit limits.
You also need to save for a more significant down payment several months before applying for the loan. While saving for a more significant down payment can seem challenging if you are a first-time homebuyer, it can help lower the interest rate.
To get around the low-down payment barrier with minimal pain, wait until you have enough savings to start shopping for a home loan. You also need to five a lower-cost property for the savings to cater for a large part of the sales price. Asking for money for gifts from relatives or signing up for gift assistance programs can also help.
Comparison Shop for Mortgages
Comparison shopping seems like a great strategy to get the best possible rate on a mortgage. But how should you go about it? Here's how to get started with the process:
Look for lenders on search engines who don't have paid ads or don't ask you for personal information to get a loan quote.
Reach out to mortgage brokers, credit unions, and contact banks (local and national) for the quotes.
Get recommendations from relatives, friends, or neighbors.
Give each prospective mortgage lender the same information about your credit score and the type of loan, length of term, down payment, and house sales price you're considering.
- Compare the loan estimates from different lenders to get a good idea about their offerings.
Scrutinize Fees and Other Loan Costs
Look at the fees lenders charge for loan processing before you apply for the loan. The fees may include the application fee, underwriting fee, mortgage rate-lock fee, loan processing fee, and broker rate. Be cautious about any excessive processing fees lenders charge.
Remember also to compare these fees across several lenders. Ask questions where necessary on whether the fee can be eliminated or lowered.
Opt for a 15-Year Mortgage Rather Than a 30-Year
Gone are the days when the 30-year fixed-rate mortgage with a 20 percent down payment requirement was the best mortgage option. Today, shorter-term fixed-rate loans or loans with variable rates can help reduce the cost of the loan.
15-year fixed-rate mortgages, in particular, have more than a half-point interest rate lower than the standard 30-year fixed-rate loans. They also allow you to build equity faster and repay the loan earlier. However, you'll need a higher down payment for this loan.
Buy Mortgage Points
It's a good idea to spend on mortgage points if you have the cash to spare and intend to keep the house for a long while. Also referred to as discount points, mortgage points must be paid to the mortgage lender at closing in exchange for a reduced interest rate. You will buy down the interest rate and end with lower monthly loan payments.
Before buying down the mortgage, you must decide whether you'll keep the loan long enough to recoup its upfront expenses. You have to weigh the probability of selling and moving out of the house or refinancing the loan for a change in the term length or a lower rate.
Only consider buying mortgage points if you're ultimately settled in your career and are fully satisfied with the house and neighborhood. The points may be helpful if you can't fathom getting better terms on your mortgage, or it will take a lot of time to get the favorable terms.
5 Great Children-Friendly Activities in Holmes County, Florida
In the Panhandle, Holmes County is a great travel destination for families and children in the northwestern part of Florida. You should visit Holmes County when looking for places to dive into crystal clear and cool springs with your kids.
As you tag your kids along on this exciting travel, here are some activities you should expect to do with them.
Picnic at Ponce De Leon Springs State Park
Ponce De Leon Springs State Park is a nature-filled park with plenty of children-friendly amenities. You can take your kids to the park on an off-season weekday or weekend to enjoy the nature trails or spacious picnic pavilion.
As your kids play around the picnic pavilion, you can unwind by reading a book, staring at the beautiful scenery, or photographing.
Explore the White Sandy Beaches of Manatee Public Beach
The Manatee Public Beach boasts beautiful white sandy beaches and clear blue waters, which can be the backdrop for afternoon beach activities with your family.
It features plenty of grills, bike racks, grills, and picnic tables that you can use to make your time at the beach more exciting.
Immerse Your Kids in Nature at Holmes Creek
Holmes Creek features beautiful coastal sceneries that are refreshing to watch. You can take your kids for a stroll along the creek and take pictures while at it. Other fun activities at Holmes Creek include swimming, fishing, and rope swinging.
Rent a Canoe at Old Cypress Canoe Rentals
You can find a variety of canoes and kayaks at Old Cypress Canoe Rentals to explore the Choctawhatchee river. Your kids also enjoy guided tours across the river and primitive camping afterward if you allow it.
Hiking at Falling Waters State Park
Falling Waters State Park is a state park in Holmes County, FL, with a spectacular underground cave and a creek that tumbles down into a sinkhole for your kids' exploration. It's an excellent place for hiking and camping, courtesy of the short hiking trails and a campground at the park.
The Bottom Line
All in all, interest rates on mortgage rates depend on both personal and market factors. While you can't control market factors such as inflation and the health of the economy, you can do something to improve your credit score, make a sizeable down payment and lower the loan-to-value ratio—all the best as you shop around for the best possible rate in Holmes County, Florida.