What Mortgage Rate Can I Expect?

Mortgage Q&A: “What mortgage rate can I expect?”

The thing with mortgage rates is that they can vary greatly depending on a number of market forces and borrower-specific factors.

That’s why it’s impossible to just throw a random interest rate out there such as 2.99% or 3.99%.

Sure, a handful of borrowers may qualify for a mortgage rate like that, but there will be many others who qualify at a higher (or even lower) rate, assuming they even get approved to begin with.

This has to do with mortgage pricing adjustments, which I’ve written about in great detail.

They include:

- Loan purpose (home purchase or refinance)
- Loan amount (conforming or jumbo)
- Credit score (what credit score do you need to get a mortgage?)
- Loan-to-value ratio
- Documentation type
- Property type (condo, investment property)
- Occupancy type
- Debt-to-income ratio

All these factors, and perhaps others imposed by specific banks and mortgage lenders, can move your mortgage rate significantly.

For example, if you want to refinance a second home with a 660 credit score and a loan-to-value ratio of 80 percent, your mortgage rate will be much higher than a borrower with an 800 credit score purchasing an owner-occupied single family residence with 50 percent down.

Risk Determines Mortgage Rates

This all has to do with risk; clearly our second borrower in the example above is less of a default risk, considering they’re putting more money down, have a much better credit score, and plan to live in the place full time.

Even if our second borrower missed a few mortgage payments and landed in foreclosure, the bank who issued the mortgage is safe because the borrower put so much money down.

This wouldn’t be the case for a borrower who obtains 100% financing and quickly winds up in foreclosure. And so that’s why mortgage rates are priced accordingly to compensate for different levels of risk.

Rates On Television Are a Tease

When it comes down to it, most mortgage rates you see on TV, the Internet, or anywhere else are just marketing rates, meaning they’re simply being utilized to get you in the door, kind of like that one car the dealer advertises in the newspaper to get you down to the lot.

(Check all 3 credit scores for FREE before you apply for a mortgage)

Once you present your unique loan scenario to the mortgage broker or loan officer handling your loan application, your mortgage rate may be nowhere close to that ad you saw.

So don’t be surprised, just know that the less risk you present the lender, the lower your mortgage rate should be (risk-based pricing).

If you use a little common sense, you’ll quickly be able to determine why your mortgage rate should be higher, lower, or just in line with the advertised rate.

Tip: Be mindful of unscrupulous lenders who may convince you that your loan is more risky than it appears as a means to charge you a higher interest rate so they can collect a bigger commission!

Read more: What mortgage rate can I get with my credit score?