what affects mortgage interest rates?
many things affect mortgage interest rates — which is why they are constantly fluctuating.

- in your hands: how much you intend to borrow and how long you wish to take to lock in your loan.
- the variables: economic forecasts and federal reserve board decisions greatly influence mortgage interest rates. for example, let’s say the job market grew more than was forecasted. this could indicate the economy is speeding up faster than expected. this could accelerate inflation, which would, in turn, cause mortgage interest rates to rise. these kinds of scenarios occur daily.

the market. when the federal reserve board raises or lowers interest rates, this has a direct impact on the rate you will get for your fixed rate home loan. adjustable interest rate mortgages, on the other hand, are tied to an index — a published number or percentage, such as the average interest rate or yield on treasury bills. a margin is then added to the index to determine your final mortgage interest rate.

timing. since interest rates change daily, the longer a lender locks in a rate, the higher the risk that the market will move against them. therefore, you pay more (in points) for a longer guarantee. if interest rates appear to be on an upswing, it makes sense to lock in your rate. if they are steadily dropping, it makes sense to float your interest rate so that you can take advantage of a shorter lock-in period.

points. borrowers can often receive a lower mortgage interest rate by paying extra points — mortgage costs that are up-front rather than built into the loan amount. each point equals one percentage point of the total amount of the loan.

credit and payment history. your credit or payment history can affect your interest rate. a less-than-perfect track record may be perceived as a credit risk and can make you eligible for only the higher interest rate loans.

debt-to-income ratio. your monthly debt obligations are calculated related to your loan amount. the higher the ratio the higher the risk — and rate.

loan-to-value. the more equity you have or the more money you put down decreases a lender’s risks, often resulting in a lower rate.

property type. lender risk plays a big part in your rate. a loan for a single-family home would be less risky than for a multi-family home because there are fewer variables. the less risk, the better the rate.

occupancy. if you plan on living in your new home, you will probably get a better rate versus a loan on a rental unit, which carries more risk.

loan amount. borrowing larger sums of money may result in a lower interest rate because the lender can make up the money over the life of the loan.