How is my interest rate determined?

Interest rates are not “one size fits all”. Lenders evaluate a number of factors when setting the interest rate for each particular loan. These factors generally represent different levels of risk to the lender, which in turn, determines how much the lender will charge. For example, a borrower who is purchasing an investment property is considered a higher risk than a buyer who is purchasing an owner occupied primary residence.

The above example is very basic, but is important to know. Lenders often advertise rates, but in order to know what rate may apply to your transaction requires that all the details be discussed with the lender. Listed below are some of the common factors that can influence your interest rate.

Purchase or Refinance
Purchases get the best rates. If this is a refi, your rate may be higher if you are taking cash out.

Loan Size
Jumbo interest rates (for loan amounts over $417,000) may be higher than loan amounts below $417,000. Also, very small loans, or large loans can have higher rates.

Length of Lock
The longer the lock period, the higher the rate

Property Type
Multi-unit buildings, high rise condos, co-ops may have a higher rate

Credit Score
Lower credit scores may mean higher rates

Loan-to-Value
Zero down loans, or loans with little down payment are considered more risky than loans with larger down payments. Generally speaking, low or no down payment will lead to a higher rate

Occupancy Type
Owner occupied primary homes get the best rate. Second homes and investment properties may be higher.

Pre-Payment Penalty
If the buyer is willing to have a pre-payment penalty, the rate may be slightly lower.

Level of Income and/or Asset Verification
Full disclosure of income and assets will get you the lowest rates.

Tax Escrows
Waiving your tax escrows combined with a low down payment may lead to a slightly higher rate.