How Are Mortgage Rates Determined?

Learn the secrets behind your mortgage rate and find out how to determine your rate before you ever apply for a mortgage.

Mortgages and their terms can be very confusing. It seems as though a banker sits in a room, rolls a pair of dice and determines how much you’re going to pay for your mortgage. In reality, however, it is not this way, and there are some things you need to know if you want to know how your mortgage rate is determined.

The United States Treasury and Mortgage Rates

The United States government is considered the safest borrower in the world. If you buy a Treasury bond, essentially giving a loan to the United States government, they are going to pay you a fairly low interest rate. Unfortunately, individuals are not the US government, so they have to pay more for their mortgages. There is a relation between the two loans though, and if the government is forced to pay more for its loans, you will be too. A great place to find 30 year Treasury bond rates (the most common mortgage length) is http://www.bloomberg.com/markets/rates/ .

Your Credit History Determines Your Mortgage Rate

Your credit-worthiness is basically how good of a candidate you are for a loan. If you pay all your bills on time, have a car that you paid off, and have never missed a payment on a credit card you are more credit-worthy than someone that just filed for bankruptcy six months ago. The “prime” mortgage rate is the rate that the most credit-worthy borrowers pay on average for their mortgages. Your credit history determines how close your mortgage rate will be to the prime rate. A website that has the prime mortgage rate and even a tool for rates in your area is http://www.bankrate.com/mortgage.aspx . This information will give you the best idea of what your mortgage rate will be, and you never even have to apply for one.

How Are Mortgage Rates Determined?

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