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Why are Some Interest Rates Higher An interest rate depends upon several factors. For instance, your rate will be higher if you have poor credit Interest rates on properties that are not occupied by the owner are generally higher than those on a primary residence. Sometimes you can choose to add a pre-payment penalty to your mortgage which can decrease your interest rate. Your interest rate can be higher if your debt-to-income level is high. Some lenders allow debt-to-income ratios of 50% or even 55%. However, the interest rates on these loans are higher. Mortgage interest rates that are secured by cooperative apartments may be higher. Coop owners in metropolitans may have to get home loans with interest rates that are 1/8 higher than other property owners. Adjustments to interest rates are lenders protection in determining risk or default. Because most loans are sold, adjustments to rates offer safety or protection for a bank/investors return of investment. If the risk to the lender is higher then the risk gets passed on to the borrower in the form of a higher rate or fees. If you choose interest only, or to waive escrows you will have a higher rate typically. If you have a loan that uses lender paid mortgage insurance, your interest rate may be higher. Your interest rate can be adjust upward, if the Loan to Value (LTV) or combined Loan to Value (CLTV) exceeds 80%. First mortgages with smaller loan amounts will generally have higher interest rates than larger loan amounts on 1st mortgages. Many lenders price these a little higher because there is not as much profit in smaller loan amounts yet there is an equal amount of risk to them. If you are taking out a second mortgage or a home equity line of credit, you should expect to have a higher interest rate. These loans typically have smaller loan amounts, and are packaged together to be sold in the secondary market. One of the best ways to lower your interest rate is to raise your credit score. The difference in interest rate between a 620 FICO score and a 720 FICO score can often be 2% or more. Ask your preferred mortgage professional how easily your credit scores can be improved. Interest rates vary based off of risk, and therefore the riskier the loan being made the higher the interest rate will be. Some other reasons rates can vary is due to mortgage insurance, as a loan with lender paid mortgage insurance will carry with it a higher interest rate to compensate for not having mortgage insurance when the loan to value exceeds 80%. Interest rates will change due to ever changing market conditions. Some of the lower rates are tied to short term bonds, just as some of the higher rates are tied to longer term bonds.
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Information listed above is to be used for educational purposes only and is not guaranteed
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