Buzz
When you take out a mortgage to purchase a property, you’ll end up paying a substantial amount of interest over time. Naturally, the higher your interest rate, the more you'll ultimately pay. But what influences that rate? While your credit history is likely the most important factor, there are several other considerations involved.
As the Consumer Financial Protection Bureau (CFPB) explains, 'Saving even a small percentage on your interest rate can result in significant savings over the life of your mortgage loan.' It's crucial to shop around and compare rates from various lenders, but understanding their perspective is equally important. Apart from your credit score, the CFPB highlights several other factors lenders consider when setting your rate:
Property Location
: Interest rates can vary depending on where you live. Some lenders may offer different rates based on the state you reside in. To get precise rates using our
Explore Interest Rates tool
, you'll need to input your state and, depending on the loan type and amount, your county as well.
Down Payment:
Generally, the larger your down payment, the lower the interest rate. Lenders see less risk when you have more invested in the property. So, if you’re able to put down
20 percent or more
, it’s worth doing—it often leads to a lower interest rate.
Loan Duration:
The term of your loan refers to how long you have to repay it. Typically, loans with shorter terms offer lower interest rates and lower overall costs, but come with higher monthly payments. The impact on both interest costs and monthly payments depends on the specifics of the loan, such as the loan duration and the interest rate being applied.
Naturally, these are not the only elements to consider. The loan type and whether the interest rate is variable or fixed also play a significant role. However, these are the less expected factors. The CFPB also provides an 'Explore Interest Rates' tool that you can use here to get an estimate of your rate based on various factors. Read their latest post for more detailed information on each of these considerations.
