Generally speaking, when it comes to a conventional mortgage, a given bank offers loans at the same interest rate for everyone. As long as your ratings allow you to exceed a certain threshold to qualify for a mortgage, you'll pay the same interest as everyone else who exceeds that threshold and obtains the same loan at the same time as you. Lenders adjust mortgage rates based on the degree of risk they think the loan represents. A riskier loan has a higher interest rate.
In addition to the fact that mortgage loan rates vary between lenders, different types of mortgage products have different rates. If mortgage lenders can get their money back in half the time (15 years), they'll reward borrowers for it with lower interest rates (making you pay a much lower total interest). While mortgage rates are not directly linked to Federal Reserve rates, when the Fed rate changes, the prime mortgage rate usually does the same soon after. Fixed-rate mortgages maintain the same interest rate over the entire term, while adjustable-rate mortgages they can change their rates after a certain period.
Learning more about what drives mortgage rates, who controls mortgage rates, and how rates can vary depending on the lender and the credit product can make you a better informed borrower. If you deposit less than 20% on a home purchase, your mortgage rate may increase and you'll often have to pay for mortgage insurance. And now that you understand how mortgage rates are determined, you're better prepared to ask smart mortgage questions when looking for lenders. You can use a mortgage calculator to see how a different mortgage term or rate would affect your monthly payment. While this doesn't directly increase mortgage rates, over time, banks and lenders must adapt to keep up with the costs of borrowing money from the Federal Reserve.
On the other hand, portfolio lenders originate and hold your mortgage instead of selling it in the secondary mortgage market. Factors that influence mortgage rates range from those over which you have some control, such as your credit rating, to major macroeconomic trends or global events affecting the total cost of borrowing money. But what influences mortgage rates in the first place? From global financial markets to your personal account portfolio, this is how mortgage rates are determined. Because lender mortgage rates vary, it's smart to look for a mortgage from multiple lenders, as you could save thousands of dollars over the life of the loan.
