Your mortgage rate determines how much you pay for your home loan. Interest rates change over time, but should you base your decision to buy a home on the current mortgage rates in Utah? The mortgage lenders at Integrity First Lending explain how much weight you should give to current mortgage rates when deciding to buy a home in Utah.
A mortgage rate is the percentage of interest you pay on your home loan. When you take out a home loan in Utah, you pay mostly toward your interest for the first years you have your mortgage, then you pay more on the principal toward the end.
Because home prices have been high for a while, most homeowners today have 30-year mortgages. For a $300,000 home bought at 4.5% interest, the homeowner would pay about $250,000 in interest over the life of the loan. However, if they opted for a 15-year loan at 4%, they would pay only $100,000.
The difference is that mortgage payments on a 15-year-loan are much higher than on a 30-year loan.
Mortgage rates fluctuate, but not usually by very much each day. When you check the current mortgage rate, the numbers are expressed out two decimal places, such as 3.16. That way, it’s easy to see even small changes.
A mortgage rate is based mostly on current interest rates, but other factors can influence your rate. For instance, your credit score is a factor. The higher your credit score is, the better chance you have at getting a lower rate. That’s because rates are based, in part, on the level of risk a bank takes on in lending you money. If your credit score is poor, you are a higher risk and will pay higher interest — if you can get approved for a loan at all.
Sometimes applicants’ credit scores are too low to qualify for a home loan. However, over a period of a few years, you may be able to improve this score enough to qualify for home loan.
Other factors that influence your mortgage rate include your mortgage term, debt-to-income ratio and the value of the home you want to purchase in relation to is price.
Mortgage rates are usually lower for shorter-term loans, because the lender gets their money back faster.
Your debt-to-income ratio refers to how much you make and how much you owe. You might earn a salary upwards of $100,000, but if you’re struggling with debt, you may not qualify for a mortgage.
Lenders sometimes reject applications for home loans because they have determined the property is not worth the purchase price. If a lender has to foreclose on a $400,000 home and can only sell it for $300,000, this financial decision will have cost them a lot of money.
The bottom line is, current mortgage rates are important, but they don’t usually fluctuate wildly in a short period of time. What is more important in determining your mortgage rate is your financial health.
Come talk to the team at Integrity First Lending, the best mortgage lenders in Utah, to find out what mortgage rate you might qualify for. We can give you advice about changes you can make that can improve your credit score, your financial health, and eventually, your mortgage rate.