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What Financial Criteria Affect Mortgage Interest Rates?

By Jim Micheals

When purchasing a new home or refinancing an existing mortgage, one of the most important aspects is getting an affordable mortgage. An affordable mortgage can save you hundreds of dollars per month. When you are applying for your mortgage, there are several different financial criteria that could affect mortgage interest rates.

Credit Score

The first piece of financial criteria that affect mortgage interest rates is your credit score. Your credit score is a score that is based off of your past credit history. A person with a low credit score, on average, is far more likely to default on a mortgage than a person with a good credit score. Because of this, a bank will offer better interest rates to a person with a good credit score than to a person with a bad credit score.

Down Payment

The second piece of financial criteria that affect mortgage interest rates is your down payment. Most banks only require a down payment of 10% to give out a mortgage, but a person with a down payment of 20% or more will almost always receive a better interest rate on their mortgage. Banks give better rates to people with larger down payments because a larger down payment increases a bank’s chances of recouping their investment in an event of default.

Income

The third piece of financial criteria that affect mortgage interest rates is your income. When you are applying for a mortgage, a bank will want to ensure that you can afford the mortgage. If you have a reliable stream of income that shows you can comfortably afford the payment, then the lender will feel more secure and give you a better rate.

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3. Does My Debt To Income Ratio Affect My Mortgage Rate?
4. Can I Get The Best Mortgage Rate With Bad Credit?
5. How Can I Lower My Mortgage Interest Rate Due To Financial Hardship?