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Mortgage rates explained

Published On: September 2nd, 2022

Mortgage rates have a major impact on the housing market and your ability to purchase a home. This page will give you a good understanding of how mortgage rates work and what affects them.

What is a mortgage rate?

Your mortgage rate reflects the cost you’ll pay to take out a home loan. As a percentage of the overall loan amount, it represents the annual interest you’ll owe. There are fixed-rate loans and adjustable-rate loans, which each come with their advantages.

How are mortgage rates determined?

Many factors come into play when determining a mortgage rate. Some of these are specific to your situation and some are out of your control. We don’t publish rates on our website because we need information on your personal financial situation that will affect your interest rate. Just because a company lists the daily mortgage rates, doesn’t mean you’ll be able to lock in that rate. In order to give an accurate rate, we need to work with you to get you pre-qualified. To determine pre-qualification, we’ll look at your credit report, earnings, debts and savings in order to see how much home you really can afford. If you’re ready for this step, work with a local loan officer today.

How you can impact your mortgage rate

  • Credit score: One of the most impactful factors that determines a mortage rate is credit score. Generally speaking, the higher your credit score, the lower your mortgage rate can be.
  • Loan-to-value ratio (LTV): This measures the amount of your potential loan compared to the value of the house you’re hoping to buy. The larger your down payment, the better your LTV is because you’ll owe less on the home compared to the value.
  • Debt-to-income ratio (DTI): This measures your existing debts compared to monthly income. If you have major outstanding debts, taking out a home loan could be a major risk. The less debt you have, the more appealing your DTI is.

How your lender impacts your mortgage rate

Mortgage rates vary by lender because companies are willing to take on different levels of risk and have different overhead costs. While it’s important to stay competitive with rates, customer service is our number one priority at Guild. Building strong connections and long-lasting relationships is why we’ve been in business since 1960. We’ll work with you to get a loan to fit your life, with a competitive rate. If you’re ready to start, contact a loan officer today!

How the economy impacts your mortgage rate*

The health of the U.S. economy and investor confidence affect interest rates and mortgage rates. Mortgage-backed securities (MBS) set the stage for mortgage rates because as MBS prices move, lenders react by changing mortgage rates to follow closely behind.
The Federal Reserve doesn’t directly impact mortage rates, but typically the Federal interest rate and mortgage rates move in the same direction. The Federal reserve can also impact rates by buying a large amount of bonds. This has happened during the COVID-19 pandemic when the Fed bought more than $1 trillion of MBS, keeping mortgage rates low.

Mortgage rates for good credit vs. bad credit

Credit history and credit score are major factors in the determination of your mortgage rate. If you have good credit and solid credit history, then you’ll have a better chance of getting a lower rate than if you have poor credit. Homeownership is still possible if you have lower credit scores. We’re here to help.

To learn more about credit, read our page about how credit works. We also have a blog with 10 tips for purchasing a home if you have a low credit score. Among these tips are being flexible when house hunting, saving for a higher down payment and educating yourself on affordable lending programs.

Ready to get your mortgage rate?

If you’re ready to figure out what your mortgage rate could be, we’re ready to help. Our local loan officers can work with you directly to make sure you get the best possible rate. Contact us today!

Read more about mortgage rates

We have more specific information on mortgage rates for the following options:

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction. *By refinancing an existing loan, total finance charges may be higher over the life of the loan. *Information is for general illustrative purposes only. The information is believed to be reliable, but Guild Mortgage does not warrant its completeness, timeliness or accuracy. Guild Mortgage assumes no responsibility for errors or omissions in the information provided. *Typically, a non-purchase second mortgage. **Please consult your financial advisor on the consolidation of short term debt into long term debt.

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