One of the most important things to look at when buying a home is the mortgage interest rate. A mortgage interest rate determines the monthly payment, which helps determine if you can afford your dream home or not. It also may impact which type of mortgage loan you might qualify for and pursue. Because of this, a mortgage interest rate can affect your long-term financial goals. Some mortgage interest rates are fixed, which means you will have a specific interest rate for the life of the loan, regardless of whether it is high or low. Due to this, it’s important to know if what you are being offered is a good rate, so that you can plan for the future. So what is a good mortgage interest rate? And what interest rate do you qualify for?
What’s the current rate?
In order to determine what a good mortgage interest rate is, we first have to see what the current average rate is. Mortgage interest rates can change daily. The U.S. Federal Reserve issues rate changes based on bond market, which is why the economy influences mortgage interest rates. For example, as COVID-19 was escalating, we saw all-time low mortgage interest rates, and many people took advantage of the low rates to buy or refinance their homes.
Most lenders include their starting interest rates on their website. It’s important for you to compare interest rates and services provided all together. At Idaho Central Credit Union, we often provide some of the greatest values to our members. Rates can also be lower with specific mortgage loans like the Adjustable Rate Mortgage (ARM) loans and Veteran Affairs (VA) loans. ARM loans tend to start with a lower interest rate, and will adjust within a certain period of years.
What’s the highest rate you can afford?
The other thing to consider is what the highest rate you can afford is. We can’t control the market and how the economy is doing, but we can calculate what we can afford. You can use our Home Loan Qualifier Calculator to help you determine what the highest interest rate you can afford is. In order to calculate the highest rate you can afford, you first need to know the highest monthly payment you can afford. Experts recommend no more than 30% of your income. Next, you can put in the purchase price of your dream home, and adjust the interest rate to see what it is when it reaches your maximum monthly payment budget.
What interest rate do I qualify for?
Now that you know the current rate and what you can afford, you can look into what interest rate you qualify for. There are many factors that go into your mortgage interest rate, including your credit score. If you have a high credit score, you might be able to get the lowest mortgage interest rate possible. The reason why is because lenders look for responsible borrowers, and a credit score indicates many levels of the borrower’s financial behaviors. This includes if you pay your bills on time, or if you have a lot of consumer debt beyond what you could afford. Other factors that may impact your interest rate include loan-to-value ratio, debt-to-income ratio, and more.
As an example, if the current rate starts at 3%, and the highest rate you can afford is 5%, you might have more flexibility when shopping for a mortgage loan. If you have a good understanding of your current qualifications, you should be able to shop with the ability to know when you are being offered a great mortgage loan and interest rate, or not. If you have a high credit score, you will most likely be able to qualify for a low rate that is close to what you see listed online. Having this information may give you a good general idea of what type of rate you may qualify for, but ultimately the best way to know what interest rate you qualify for is to start your application, or pre-qualification.
Now that you have a good knowledge of where you might be at, the best next step is to reach out to a Mortgage Loan Officer to start your application process. The sooner you start your process, the sooner you can take advantage of a great, low rate, and lock your rate before it goes up again. Contact one of our Mortgage Loan Officers today to get started on your application!