How to Determine Mortgage Rates

When it comes time to shop around for a mortgage lender, consumers have many different options. One of the challenges is finding the right mortgage lender and more importantly, finding the best mortgage rate. In order to do that, it’s important to understand how mortgage rates are set. Who sets the rate? What will change the rate and what can you do to make sure that you get the best possible deal? These are important questions and the answers will help you make sound decisions as you shop around with the various mortgage lenders.

Who puts the number on mortgage rates?
Basic rates are determined by lots of different factors. It starts at the top, as the Federal Reserve sets the interest rate for bank to bank lending. When this rate is high, banks tend to charge more for all of their loans, including mortgage loans. More specifically, the decision on your particular rate will come from the mortgage loan department at the bank you are using. They will have loan officers and mortgage experts set their base rates for 20-year,base rates for 30-year mortgage, and extended mortgages. Still, your situation itself is likely to require special attention. Not every person has the same type of application, so the lenders will change things up to suit your situation if you qualify.

What will effect basic rates?
Those people who qualify as “prime” mortgage customers will have lower rates than the people who come in as sub-prime. The idea is that if you have solid credit and you are sound financially, then you will end up with lower rates. The banks today are looking to attract customers who have the ability to pay back loans in full and on time. When they find a person with this type of ability, they will offer incentives to that person. This means that having solid credit will allow you to get the best possible loan offers from your lender, regardless of what the rest of the market is experiencing.

Additionally, you can tell how the basic mortgage rates at different banks are going to move by looking at the entire economy. As the economy gets worse, the Fed is much more likely to cut the interest rate for bank to bank lending. This can lead to lower rates. When the economy is good, the banks can afford to give out more expensive loans, so you can expect the rates to be higher.

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