Mortgage rates vary depending on the type of loan you obtain and for how long you are borrowing it. The rate also differs from one lender to another. When you plan to obtain a home loan, you must shop around and compare the monthly mortgage payments and total interest on different loans with the help of an online mortgage calculator. This will help you go for a loan that you can comfortably repay.

What are the market factors that determine mortgage rates?

There are certain factors beyond the lender’s control that affect mortgage rates. Before you start comparing interest rates on different home loans, you must know the following factors:

* Inflationary trends: Inflation directly affects the mortgage rates. During inflation, the value or purchase power of money decreases. An increased rate of inflation increases the interest rate on home loans. On the other hand, lenders reduce the rates during deflation.

* Stock market: The credit supply and demand in financial market get affected by fluctuations in stock market and this in turn affects the mortgage rates. When stocks go up, individuals prefer putting money on stocks over investing on mortgage backed securities. In such a case, the interest rate on home loans will increase.

* Federal Reserve discount rate: The Federal Reserve Discount Rate is the rate at which the Federal Reserve Banks charge other banks for borrowing money from them. When the discount rate increases, obtaining credit becomes expensive. Hence, banks are not able to borrow much. As a result of this, the financial institutions increase the rates on mortgages.

What are the individual factors that affect your mortgage rate?

Lenders rely on various factors to determine the risk they take by lending you money. The risk is reflected in the interest rate they charge you for the mortgage. Some of the factors are:

* Types of mortgage: There are different types of mortgages available at varying interest rates. If you choose an adjustable-rate mortgage, the initial rate will be lower than that of fixed-rate mortgage and generally increase with rise in market rates. The mortgage rates will also be different in the case of jumbo loans and hybrid loans.

* Credit score: Your credit score is the most important factor that lenders consider while offering you a home loan. If you have a good credit score, you will be able to obtain the mortgage at a lower rate of interest.

* Type of property you are purchasing: If you require a home loan to buy your primary residence, lenders will offer you a reduced rate. This is so because lenders believe that people generally do not default on mortgage payments on primary residence.

The mortgage rates may also differ based on the location of your property. Before obtaining a mortgage, it is wise to compare the total interest payment on various loans with the help of an online mortgage calculator. This will help you to go for the one that is most affordable for you.

Samantha Taylor is the Community Mentor of MortgageFit and has been contributing her suggestions to the Community since 2005. Not just that, she has also made notable contributions through the various articles written on different subjects related to the mortgage industry. Few of her popular articles would include names like ‘Mortgage that you can afford’, ‘Mobile Home Loan with Bad Credit’, and How much mortgage can I borrow?’

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