Market factors determine whether mortgage rates today go up or down, and borrowers have no say in it. On the other hand, market factors include the Fed, the economy's health, and inflation. Here's a detailed look.
Are you a first-time homebuyer? Learn more about the available FHA home loan options in Sumter County, Florida.
Market variables that determine why interest rates are where they are
The market is one of the significant determinants of mortgage rates. The prime lending rate goes up or down depending on the bond market, the Federal Reserve, the Constant Maturity Treasury, the Secured Overnight Finance Rate, the status of the economy, and inflation. These factors are out of the borrower's control. They include:
The Federal Reserve
The Fed doesn't give orders on what rates to charge borrowers. It regulates the money supply by raising or lowering the rates at which lenders can borrow money to lend to customers. These are called short-term rates. When the economy is doing well, the Fed raises short-term rates to tighten the money supply and vice versa.
Although there isn't a direct relationship between mortgage rates today and Fed rates, if the Fed rate rises, the prime rate for mortgages typically does too not long after. That's because if banks spend more to borrow, some extra costs will be passed on to borrowers through higher mortgage rates.
The Bond Market
Contrary to popular belief, mortgage rates today are more closely tied to the bond market than the 10-year Treasury note.
Mortgage-backed securities, commonly referred to as mortgage bonds, are usually sold in huge bundles on the bond market. The appetite for these bonds has an impact on mortgage interest rates.
For instance, investors shift to mortgage-backed instruments when the stock market performance declines because they are more secure. Consequently, the rise in demand for mortgage-backed securities makes mortgage rates rise.
The Secured Overnight Finance Rate
SOFR is the successor to LIBOR (London Interbank Offer Rate), which was dropped in 2021. The SOFR is a comprehensive measure of the cost of borrowing money overnight using Treasury securities as collateral. Depending on the type of mortgage, lenders frequently utilize SOFR to determine the basic interest rate.
The Constant Maturity Treasury Rate
CMT rates are computed by averaging the yields of various Treasury security types with varying maturities and then applying various time adjustments to that average. Therefore, a CMT rate is like a picture that shows how much income you might make from traded securities based on current market trends if you decide to invest in them.
Some lenders will use this rate to calculate the interest on adjustable-rate mortgages. If CMT determines your loan rate, it will increase when CMT increases and vice versa.
The State of the Economy
Mortgage rates increase when the economy is booming to curb high spending. The inverse is also true; when the economy struggles, mortgage rates drop, making properties more affordable for borrowers.
Mortgage interest rates and inflation frequently rise together. Rising inflation causes interest rates to increase to keep up with the dollar's value. Mortgage rates decrease as inflation goes down. When inflation remains low, mortgage rates often do not change much, if at all.
What are the Personal Factors that Influence Mortgage Rates?
While market factors determine why mortgage rates are where they are, lenders do not use the same rate for all borrowers. Also, different lenders may offer different rates to the same borrower based on how they estimate the borrower's riskiness.
The assumptions used to estimate a borrower's riskiness are as follows:
Credit scores measure how seriously individuals take their debt obligations. Higher scores are awarded to folks who take credit seriously and work to repay their debts on time. On the other hand, folks with low credit scores have misused credit before or have a lot of debt in collection and therefore have substantial outstanding debt.
The minimum credit score required for home purchases varies depending on individual lending programs. Usually, higher credit scores are preferred, and you'll be quoted a rate close to the advertised figure.
On the other hand, borrowers with poor credit scores are deemed "risky" to lend to, and therefore, lenders take extra measures to compensate for the high possibility of default. One of those measures is charging a higher interest rate. In some loan programs, mortgage insurance may also be required.
Typically, conventional loans require a credit score of 620 or higher. However, the minimum score is somewhat lowered for loans backed by or insured by the government. Usually, it's set at 580. In general, your negotiating power increases with a better credit rating.
Lenders typically demand evidence that you've made a down payment on the house and aren't only depending on a loan. Most lenders assume that as your equity stake in your home rises, the less likely you'll default on the loan.
Therefore, the size of the down payment you put into a house will affect the rate you get on the mortgage. Conventional loans usually require a 20% down payment, while FHA loans require 3.5%. However, saving for a down payment on these loans will result in lower mortgage rates.
The size of your down payment decides your LTV. Let's say the lender-assessed value of the home you want to buy is $500K, and you are willing to put down $100K, meaning you want to borrow $400K. Then the LTV is $400,000/$500,000 = 80%.
Lenders reward lower LTVs with lower rates and vice versa. Generally, the sizeable the down payment, the lower the LTV and, therefore, the risk in the lender's eyes. Of course, the LTV is affected by upfront fees and costs too. These will reduce your deposit and raise your LTV.
When it comes to occupancy, lenders classify properties as primary homes, secondary homes, or investment properties. Usually, borrowers looking to buy a primary home get better loan rates than borrowers looking to acquire a second home or investment property.
That's because lenders assume that if you intend to use the property you are buying as your principal home, you'll work harder not to have it repossessed. On the other hand, adding another mortgage for a second residence or investment property to the one you already have increased your risk of defaulting on the loan. Therefore, lenders impose a higher rate on the second mortgage to compensate for this risk.
Mortgage categories include traditional and government-sponsored loans; FHA, USDA, and VA loans. As mentioned, the minimum credit score required for home purchases varies depending on individual lending programs, as do qualification criteria and rates. You will better know all your options after speaking with different lenders.
Lenders offer different rates to people based on their state or county. For instance, you can apply for a low-interest USDA loan if you wish to buy a house in a rural area (usually available at rates ranging from 1%-3%).
Shop around. Many lenders have various mortgage products with different interest rates depending on where you want to buy your property.
The loan duration you want will also impact the interest rate you get. Longer-term loans are subject to higher interest rates to make up for changing interest rates and a greater risk of default. Conversely, short-term loans have marginally lower interest rates.
Interest Rate Type
Mortgage rates can be adjustable or fixed. Fixed interest rates don't change over time. Conversely, adjustable rates remain fixed for a brief period, after which they fluctuate based on market factors.
So, even though an adjustable-rate loan may start with a lower rate than a fixed-rate loan, it may later increase significantly.
Additional Considerations - Discount Points and Lender Credits
Now, the factors mentioned above are only presumptions lenders make to categorize borrowers according to their risk levels and decide what rates to charge. Additionally, lenders can adjust the par rate using points and lender credits.
As you look for a mortgage, you'll find that some loans have various points, which results in various rates. You can use discount points and lender credits to reduce your mortgage rate and closing costs.
Discount points reduce your interest rate in exchange for a more significant upfront payment. Paying points raises the initial mortgage payment but lowers the interest rate, bringing down the overall loan cost. However, only use points if you plan on keeping the home for longer; otherwise, the large initial payment will go to waste.
- The opposite is true for lender credits. They increase your loan rate rather than lower it while cutting your closing costs. The lender will advance you a sum to cover closing costs in return for agreeing to pay a higher rate on their loan. However, some lender credits don't affect the mortgage rate today. For example, you may receive lender credits as compensation for a mistake, which won't raise your mortgage rate.
Of course, discount points and lender credits are optional. For instance, you could decide to pay points at closing in return for a lower rate. You can also decide not to pay anything or get any points. The same is true for lender credits.
How frequently do mortgage rates change?
Mortgage rates change frequently; they can even change several times during the day. Every day, lenders receive rate sheets with figures based on market factors. Changes in interest rates due to market factors are known as volatility.
The simplest way to avoid volatility is to speak with your lender regarding locking in a negotiated interest rate before it moves against you. There are, of course, several strategies to use when negotiating for lower mortgage rates today.
Many individuals are unaware they can negotiate for reduced interest rates on loans. Many reach out to embrace the first deal put in front of them, even though it might not be the finest one available.
Always talk to several lenders to compare offers. According to research, comparing several offers and choosing the best one might save you up to $3,000. Here are strategies to negotiate for a better mortgage rate today:
Talk to several lenders and compare deals.
When you've found the lowest rate, please return it to your lender and request that they match it. You can always switch lenders if they disagree.
Work to raise your credit score. A stellar credit score gives you more negotiating power. To improve your credit score, pay your debts on time, settle collection accounts, lower your outstanding debt, increase your income, and keep your accounts open. Additionally, you ought to check your credit records for fraud and errors.
Make a larger down payment.
- Use discount points.
Sumter County, Florida information
Centrally located in Florida, Sumter County is a popular retirement destination. There, residents enjoy golfing and fishing, among other things. The county was established in 1853 and bore the name of the Revolutionary military leader, Thomas Sumter.
The county borders several counties, including Citrus, Marion, Polk, Pasco, and Hernando. Due to its central location, it's often referred to as "The Crossroads of Florida."
Many places in Sumter offer residents a suburban-rural mix feel, and the people are friendly. The best places in the county to raise a family include The Villages, Bushnell, Lake Panasoffkee, Colman, Wildwood, and Center Hill. Some of the top activities for kids include:
There are several fishing spots throughout the county where you can spend afternoons with your kids and watch as they marvel at the unique creatures in the waters.
You may cast your line at the Bass Conservation Center, Big Cypress Bait and Tackle, Bronson's Camp Outlaw at Indian Bow, Coleman Landing Boat Ramp, and Halfmoon Wildlife Management Area.
Set off on an adventure-filled day in search of lost treasures with the help of a map and GPS
A lot of parks in Sumter County offer outdoor motorsports opportunities. If you are jonesing for the roars of engines and high-speed cruises, check out Bushnell Motor Sports Park, Spyder MX, and Bronson's Camp Outlaw at Indian Bow.
The parks in Sumter County are not only surrounded by stunning panoramas of waterways, majestic oaks, and open fields but they're also packed with facilities for kids to enjoy.
The playgrounds at Croom-A-Coochee Park, Lake Miona Park & Boat Ramp, and Lake Panasoffkee Recreation Park are appropriate for kids of all ages.
There are many baseball fields in Sumter County. Introduce your kids to America's favorite pastime activity at one of the venues.
The Bottom Line
Numerous factors affect mortgage rates today. You can best prepare for a rate negotiation by knowing what you can influence and what you cannot.
Sumter County, Florida, provides a peaceful suburban-rural mix setting ideal for families. You will require assistance finding a fabulous mortgage deal if you relocate to the county.
Sumter County, Florida, has a variety of mortgage options available. If you are not eligible for conventional mortgages, choose government-sponsored loans instead. Contact us if you need assistance navigating the county mortgage market, and we'll be happy to help.