Lenders want assurance that you'll pay your mortgage fully and within a suitable timeframe. As a result, they'll use your creditworthiness to determine your reliability as a borrower.
Lenders calculate your credit score from your credit report, considering your outstanding debts and payment history on the obligations. A credit score of 700 or more guarantees you a mortgage from any lender at a competitive rate. However, if your score falls within 500-600, lenders may perceive you as a high-risk borrower and trade a lower interest rate to compensate for the risk.
Lenders focus on mitigating risk when issuing mortgages, so if you carry minimal risk of default, you'll qualify for a better rate. One of the best ways to negotiate a better deal is to invest a significant portion of the down payment.
If you can put down 20% or more upfront, you'll avoid paying private mortgage insurance (PMI), keeping your monthly payments low. A larger down payment also gives you a broader choice of suitable lenders, so you compare quotes and settle for the lowest rate.
The loan term refers to the time frame you have to clear the borrowed sum. Generally, a shorter loan term has a lower interest rate since there's little likelihood of market interruptions within the short period.
In addition, a shorter loan term enables you to build equity quickly, reducing default risk since you have a substantial share of your investment. It is, therefore, advisable to agree with your lender on the best rate that fits your budget.
Interest Rate Type
Mortgage interest rates come in two forms; fixed and adjustable rates. While fixed rates remain constant over time, flexible rates begin from a fixed amount and fluctuate depending on the market trends.
The home price refers to the loan amount you'll obtain from the lender to buy the home and meet other closing costs. Your loan interest rate may be higher or lower, depending on the amount you borrow. Typically, a more significant loan amount will have a higher interest rate because the lender bears a more significant risk of a financial loss if you default on payment.
An excellent way to determine a suitable price range is to consult an approved real estate agent or search from an accredited website.
Mortgage lenders will set an interest rate based on the property you wish to buy. For instance, a single-family property will attract a lower interest than a condo or a multi-unit apartment.
Similarly, home occupancy is essential in determining your loan interest rate. As a result, if the home is your primary residence, you can qualify for a better rate since lenders have assurance you won't default on your payment. On the other hand, if you're buying a second residence or investment property, your interest rates will likely be higher.
Mortgage interest rates in the US vary significantly between different states. For instance, Rhode Island loan rates are lower than those in high-end states like Nebraska, Hawaii, and Alaska.
In Florida, loan rates may vary depending on the location of the property you wish to buy. For this reason, buying a property in a rural area may attract a lower mortgage interest rate than acquiring a similar property in urban areas.
Different loan types are available for prospective home buyers, including VA mortgages, USDA loans, FHA loans, and traditional mortgages. Each mortgage program has different eligibility requirements and interest rates.
For instance, FHA loans have government backing from the Federal Housing Administration; hence; they have a fair interest rate.
Loan-to-Value (LTV) Ratio
The LTV ratio compares your down payment to the total loan amount. Generally, lenders consider you a low-risk borrower if you have a higher down payment and subsequent high LTV ratio. Therefore, lenders will charge a lower interest rate for a lower LTV ratio and a higher rate for a high LTV ratio.
External Factors That Determine the Current Interest Rates
Many external factors determine the national average and local lending rates. They include the borrower's financial capability, economic factors, government policies, market trends, and many more.
Below is an in-depth look into the external factors determining current interest rates:
Inflation is evident when the money supply exceeds the market's available product. As a result, product prices rise sharply, affecting the purchasing power of the local currency.
Mortgage lenders are always cautious about an increase in product prices due to inflation. Higher inflation will cause an equal rise in treasury yields, increasing mortgage rates. Usually, the growth occurs because mortgage financiers must maintain an optimal interest rate to overcome erosion of buying power and ensure a profitable return.
For instance, if the mortgage interest rate is 5% and the annual inflation rate is 3%, mortgage lenders will earn a 3% return on investment. Lenders will, therefore, adjust their rates when issuing mortgages to home buyers.
Housing Market Trends
Market trends in the housing sector affect local lending rates. For instance, property demand will decline when only a few homes are available in the mortgage market. As a result, mortgage lenders may lower interest rates until more apartments are available for sale.
Similarly, consumer trends in the mortgage sector may affect interest rates. If homeowners opt to rent instead of buying property, changes in the property demand may prompt financiers to revise their lending rates.
A country's economic growth rate strongly impacts the current mortgage rates. Notably, economic growth indicators like employment rates influence lending rates to a large extent.
For instance, when the economy grows, employees may receive higher wages, enabling them to buy high-end apartments. In turn, interest rates may rise since mortgage financiers have adequate capital to lend.
On the other hand, slow or declining economic growth has the opposite impact on interest rates. When the economy dwindles, wages reduce, and housing demand decreases. In turn, banks must reduce their lending rates due to market decline.
Federal Reserve Policies
The Federal Reserve doesn't have an active role in setting interest rates for the mortgage sector. However, the Federal Reserve sets a funds rate that determines the money supply in the financial industry. As a result, a decrease or increase in the fund's rate impacts the local mortgage rates.
Banks usually sell corporate bonds as part of their financial products. Government-backed bonds mainly offer attractive long-term yields to interested buyers. An example is the 10-year Treasury bond that guarantees 100% investment.
Besides their guaranteed yield, the bond market greatly influences the mortgage interest rates. Typically, when the demand for treasury bonds increases, the mortgage interest rate also increases.
How To Negotiate a Better Interest Rate in Madison County, Florida
You may not have absolute control over the market factors influencing mortgage interest. However, it is still advisable to negotiate a better deal when applying for your mortgage. How then can you get a better interest rate?
Below are tips to help you get a fair rate:
Boost Your Credit Score
Lenders use your credit score to predict your likelihood of paying the loan. Although a lower credit score may not hinder you from getting a home loan, it may make a difference in your loan interest rate.
Generally, if the lender is confident that you'll pay your loan fully and on time, you can negotiate for a lower interest rate. That's why the most favorable rates are available for buyers with high credit scores, usually 720 or more.
The best way to boost your credit score is to clear your outstanding bills and pay debts on time. If you must have a debt on your credit card, ensure it doesn't exceed 20%-30% of the maximum credit limit.
Another way to boost your credit score is to check your credit history frequently with an approved bureau. If you find discrepancies and errors on your report, resolve them before applying for your mortgage.
Invest a Bigger Down Payment
A smaller down payment means a higher risk of default to the lender. For this reason, your lender may require you to purchase premium mortgage insurance (PMI) if you pay less than 20% upfront.
Saving up for a more significant down payment is the key to a better interest rate. In addition, it helps you save the total loan cost by eliminating premium mortgage insurance.
Purchase Mortgage Points
Mortgage points are fees you pay directly to the lending institution at the loan's closing. In return, the lender gives you a waiver on the interest rates and, subsequently, lower monthly payments.
A point is equivalent to 1% of the total mortgage amount and can reduce your interest rate by 0.25%, depending on the current market condition.
Compare Different Rates
The mortgage sector is full of many industry players offering various loan products. Shopping for different rates allows you to get the most competitive prices and understand the various financial products available. The best way to find attractive rates is to get at least three quotes from different lenders.
An excellent way to get started is to ask friends and relatives for recommendations on the best lenders. You could also search online consumer websites for client reviews on mortgage lending rates.
Reduce Your Debt-to-Income (DTI) Ratio
The DTI compares your monthly debt bill with the total gross monthly income. Most mortgage lenders will require a DTI ratio not exceeding 36% to get a loan. Generally, a lower DTI appeals to the lender since it shows you can repay the loan without stretching your financial limit.
The best way to reduce your DTI is to reduce your monthly debt bill. That way, you'll comfortably pay your loan and retain extra cash for other expenses.
Top 5 Activities for Kids in Madison County, Florida
Madison is an ancient county in the North central part of Florida. The county, situated on the famous Florida Panhandle, derives its name from James Madison, a former US President.
Madison County began as a plantation belt, with cotton being the dominant crop. Currently, it is a thriving dwelling for different races, with an estimated population of about 18,000 people.
Below are the top 5 activities for children in Madison County:
Biking at Econfina State Park
Econfina River State Park is a relaxation spot on the Northern Gulf coast. The park borrows its name from the Econfina River, which meanders through the neighborhood's pine forests and salty marshes.
A visit to this park gives your children an opportunity for biking, thanks to the classic 15 miles of biking trails. Meanwhile, your kids will have a lovely view of Florida's coast, with lush green islands and beautiful dunes. You could spot some wildlife such as black bears and deer if you're lucky.
Besides biking, the Econfina River provides an excellent spot for canoeing, kayaking, and boat riding.
Camping at the Suwannee River Hide Away
If you love camping and outdoor activities, a visit to Madison County wouldn't be complete without touring the Suwannee hideaway. The campground, located along the Suwannee River, has a pleasant wilderness with lush green plants suitable for a weekend camp for your children.
Besides camping, your kids can enjoy special outdoor activities ranging from bird watching, fishing, hiking, and biking.
The park also has more than 30 miles of paved trails for biking enthusiasts.
Family Fun at Adventure Landing
Adventure Landing is an ideal place for a fun-filled family experience. Here, you'll find many memorable activities to enjoy with your children.
First, there are two themed golf courses with lush landscaping and foliage. So, you can have a mini golf match together as a family.
Adventure Landing also has a quarter-mile go-kart track for enjoying a speedway drive. You can hire a go-kart for every family member and compete towards the finish line.
The family meeting point is also a beehive of interactive arcade games, among many fun activities.
Playing Indoor Games at Jumperz Fun Center
Jumperz is a 14,000-square feet playground for indoor games located in Orange Park. It is ideal for kids' activities, starting at two years old.
Mainly, your kids will love the themed and challenging inflatable tubes where they will bounce all day long.
The Jumperz is not only famous for the bouncing castles but also as a Battle Zone. You can work as a combat team to fight an enemy in pitch darkness. Children also have an opportunity to play multiple video games, which are not only challenging but entertaining.
Having Fun at the Diamond Ranch
Madison County is home to the beautiful 600-acre Diamond ranch. The farm hosts a horse and cattle ranch, a family entertainment area, a wagon ride, and a summer camp for kids.
You can take your children to the ranch to learn about working on an animal farm and have a memorable encounter with livestock. You'll enjoy horse riding for a day or 2-day tour if you love horses. Little kids can also enjoy a pony ride or walk into the zoo for a petting session with the animals.
Mortgage rates depend on the basic rules of market demand and supply. That's why market forces such as inflation, Federal Reserve policies, economic growth, and the bond markets have a significant role in the sector. In addition, personal factors incorporating your credit score, income levels, down payment, and credit standing influence the monthly payment you'll incur on your mortgage.
Although you can't control the market conditions, you can improve your qualifying factors, so you stand a chance to negotiate better interest rates.
If you're in the process of buying a home or refinancing your current mortgage, contact an approved lender for advice on interest rates.