Here are six key factors that can have an impact on the interest rate:
CREDIT SCORES: Credit score is one factor that can affect an interest rate. In general, consumers with higher credit scores receive lower interest rates than consumers with lower credit scores. Lenders use credit scores to predict how reliable someone will be in paying their loan.
HOME PRICE AND LOAN AMOUNT: Home buyers can pay higher interest rates on loans that are particularly small or large.
DOWN PAYMENTt: In general, a larger down payment means a lower interest rate, because lenders see a lower level of risk when there is more stake in the property.
LOAN TERM: The term, or duration, of the loan is how long one has to repay the loan. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments.
INTEREST RATE TYPE: Interest rates come in two basic types: fixed and adjustable. Fixed interest rates don’t change over time. Adjustable rates may have an initial fixed period, after which they go up or down each period based on the market.
LOAN TYPE: There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type is chosen.