Once you have decided to buy a property or home and is considering loan options, most home buyers or home loan-seekers are puzzled as to what interest rates they should pay. Different financial institutions and lenders offer an array of loan options with variable interest rates. It is not always important that you choose the home loan as per your budget, need and preferences, but credit card companies also have certain criteria, that will ascertain your eligibility for the interest rates.
Check out the following details, to know which factors would influence your home loan interest rates.
Type of property: Loan interest rate is very much dependent on the type of property you want to purchase. First time home buyers who would occupy the property themselves has an edge over those buying a second home or buying an investment property; and are thereby offered lower interest rates.
Location: Again, interest rates for home loan vary according to locations (state to state) or from lender to lender. While some states levy higher interest rates on home loans, few other states only have lower borrowing costs on average.
Loan term: Interest rates for home loans are generally lesser with the increasing loan term period. Such as, the interest rates for a 30-year loan are lesser than a 15-year loan term period. So it’s higher rate for short term loan and lower rates for long term loan.
Loan amount: The interest rates also vary with the enormity of the loan amount. You definitely have to shell out higher interest rates if you are seeking a ‘jumbo’ amount as home loan.
Loan-to-value (LTV) ratio: Another very important factor that ascertains your interest rates for a given amount of loan is your loan-to-value ratio. Here the LTV is determined by the total amount of your loan amount divided by the appraised value of your home or the home you are contemplating to buy. So, in case of possessing lesser equity or ability to pay small down payment, there are chances of you having to pay a higher interest rate.
However, the most important thing that determines your interest rates is undoubtedly your credit score and credit history. Since credit score is a representation of how well you have handled your finances and how timely you are with your payments; in all likelihood you are going to pay lower interest rates if you have a high credit score and vice versa.