Factors That Affect Mortgage Premiums
Several factors can affect your mortgage premiums such as the
amount of the loan, the length of the loan, adjustable rates,
the size of the down payment, discount points, closing costs,
credit quality, income level, and lock-in period. . An
adjustable rate mortgage may get you started with a lower
interest rate than a fixed rate mortgage, but your payments
could get higher when the interest rate changes.
A larger down payment such as one that is greater than 20% of
your loan, will give you the best possible rate. A down payment
of 5% or less will result in a higher rate as you are starting
with less equity as collateral. Basically in exchange for more
money upfront, lenders are willing to lower the interest rate
that they charge, which ultimately lowers the payments of the
borrower.
Credit quality and debt-to-income-ratio also affect the terms of
your loan. The better credit you have, the lower payments you
have. Likewise, the higher your income is in relation to the
debt you owe, the lower the interest rate you receive on your
loan. However, if your monthly income barely covers your minimum
debt obligations, you will not receive the lowest available
interest rate even if you have great credit.
Your credit report provides information to current and
prospective creditors to help you make purchases, secure loans,
pay for college educations and manage your personal finances.
Credit reporting makes it possible for stores to accept your
checks, banks to offer credit and debit cards, businesses to
market products, and corporations.Your credit report is only
compiled when you or a lender makes an inquiry. Information
supplied by lenders, you and court records is gathered from the
credit reporting agency's file and presented in report format
for the requester.
Another important factor in this process of determining credit
"worthiness"is the ubiquitous credit score. A credit score is a
value assigned to several criteria used in making lending
decisions. Criteria chosen in this process include the amount
you owe on non-mortgage-related accounts such as credit cards,
your payment history and credit history.
Based upon this number,lenders calculate a value representing
the amount of risk you pose to a lender. That value takes into
account the track record of other consumers with similar credit
profiles. By looking at this value, lenders are able to
ascertain whether it's a good idea to extend you credit. FICO
credit scores range generally from 300-850, with anything above
660 considered good. Yet other factors such as heavy debt or
lower income,can affect credit decisions made by lenders for two
clients with the same credit score but different incomes or
debts.
Mortgage companies use ratios to determine what kind of loan and
mortgage to offer clients. They consider ratios such as debt
-to-income as well as the "front ratio" or housing payment
ratio, which compares your total mortgage payment to your
monthly income. Generally, this ratio is 30%. Another ratio they
use is the "back ratio" or total debt expense ratio, compares
your total monthly obligations including your total mortgage
payment to your monthly income. This ratio is generally 36%.