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Understanding Mortgage Interest Rates

Understanding Mortgage Interest Rates | Home Loans by Alex Doce at The Doce Group

Understanding Mortgage Interest Rates

If you take out a $250,000 home loan, you won’t pay back $250,000 exactly. Instead, you’ll pay $250,000 plus interest. The amount of interest you repay is expressed as a percentage, known as your mortgage rate. 

Interest is the reason why home loans are available at all; they create a mechanism for lenders to profit by offering loan products. Yet interest can also be expensive, and it’s natural to want to keep your mortgage interest rate as low as possible.

Who sets interest rates? 

Lenders set their own interest rates based on a combination of market factors and your financial profile. For example, a low-risk borrower with a high income, low debt-to-income ratio, and high credit score can expect to enjoy lower interest rates than a high-risk borrower. 

You can’t control market factors or lender policies, of course, but you can work to mold yourself into an attractive borrower prior to purchasing a home. Do what you can to clean up your credit score while saving for a higher down payment. Doing so will give you more options. 

How does the Federal Reserve impact mortgage interest rates?

The Federal Reserve sets the mortgage interest rate on the federal funds rate, which is the interest rate banks charge one another when they lend to each other. 

While the federal funds rate doesn’t directly impact mortgage rates, banks tend to raise and lower their mortgage rates as the federal funds rate increases and decreases. They do this because a higher federal funds rate means higher operating costs. 

What is the difference between APR and mortgage rates? 

The interest rate only accounts for a portion of your loan cost. The APR accounts for all of it: interest rates, lender fees, and discount points.

Lenders express APR as a percentage, just like your mortgage rate, but APR will always be higher than your interest rate. You should, of course, take both numbers into account when you evaluate your loan. 

Why are interest rates so high in 2024? 

Inflation and Federal Reserve policy have been pushing interest rates higher. Experts predict they will begin to fall later this year. 

Rates probably won’t go as low as 3% as they did during the COVID-19 pandemic, but that doesn’t mean you have to wait to purchase a house. There are many loan programs and packages, and choosing the right loan can help you achieve a reasonable monthly payment. In addition, as mentioned, some lenders charge lower rates to stay competitive.

When you call Alex Doce, he can help you attain a loan with the best rates and fees. He can also help you choose a loan program that will be advantageous for your unique situation. Don’t let the rates on the news stop you from shopping for your dream home, as they often are not an accurate reflection of the rates you’ll ultimately be paying.

How can you get lower rates? 

Some of the factors that go into setting interest rates are within your control. Here are a few steps you can take to get lower rates.

  1. Improve your credit score before you shop for a mortgage. Pay down credit card debt, make your payments on time, and get a copy of your credit report so you can challenge inaccuracies. Higher credit scores mean lower rates.
  2. Save up so you can offer a higher down payment. You’ll borrow less money, and you’ll begin with more equity, which means you’ll reduce the lender’s risk. 
  3. Try a shorter loan term. 30-year mortgages have higher rates than 15-year mortgages. While a 15-year mortgage will have a higher monthly payment, you’ll pay off the house that much faster.
  4. Reduce your debt-to-income ratio by raising your income or paying off more debt. 
  5. Choose the right loan program. Different loan programs offer different rates.

Finally, working with the right lender can lower your rates. The Doce Group will always offer you the best possible rates for your situation. 

Find the Best Rates Today 

Schedule a one-on-one consultation with Alex Doce to receive the lowest possible rate on your home loan! 

Plus, you’ll receive honest written information, excellent service, and constant, clear communication.

Call (800) 355-ALEX to get started today. 

Written By:

Alex Doce

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