The FED and your Home Mortgage!

The interest rate is key when shopping for a new home loan. The rate will play a large role in figuring the amount of your monthly payments and also the overall total amount to be paid over the term of the loan. Interest rates often fluctuate, even daily at times. Many of us wonder what factors are involved in the fluctuation of these rates. The monthly payments will commonly also include Property Tax & Homeowners Insurance.  Is the Federal Reserve Bank responsible for your ultimate mortgage loan interest rate? How can we find the lowest home mortgage interest rate?

The FEDeral Reserve Bank’s part

The Federal Reserve is the central bank of the United States; this institution sets a target interest rate for lending funds to retail and commercial banks. The interbank lending rate may not directly impact the mortgage loan interest rate as there are many other factors which lead to the Federal Reserve’s adjustment of interest rates.

Mortgage interest rates fluctuate most by Bond investors’ decisions; although these may be influenced from the Fed, there are other decision factors. In the past, there have been instances where mortgage rates drop as the Federal Reserve lending rates rise; we must remember that mortgage loans are generally safer than other types of loans, thus less risk when good underwriting criteria are met. Mortgage interest rates typically rise when stock values are high and we have a relatively low level of unemployment.

FACTORS THAT AFFECT LOAN INTEREST RATES

A homebuyers’ individual loan interest rate is heavily determined by the details in the loan application. Credit rating, debt to income ratio, employment stability, percentage of loan requested, and other assets held by applicant will be factors reviewed before determining the best available rate. In addition to the above items, supply and demand on local and national housing markets will cause fluctuation on the interest rates offered at the time.

Types of loans will also have a notable fluctuation in rate; a fixed rate mortgage or an adjustable rate mortgage will never be offered at the same interest percentage rate. For instance, if the homebuyer is not planning a long term ownership, it may be beneficial to take an adjustable rate mortgage offered at a substantially lower rate with the possibility of much higher rates in future years.

Before applying for a new home mortgage, it is important to protect your FICO credit score; it is important to keep your credit inquiries at an absolute minimum and not take additional credit prior to seeking a new mortgage. If you can afford a large down payment or can get some family assistance, you may be able to secure a loan with a lower interest rate; for example, a customer with a 40% down payment will pay considerably less interest than a customer with a 5% down payment. There are a variety of loan programs and they are priced according to risk.

Before venturing out to the road of homeownership, it would be beneficial to review homeowners insurance rates in the area, flood insurance (if required), property tax rates, the cost of utilities and any additional fixed expenses which must be budgeted before completing the loan application.