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Factors that Affect Mortgage Rates

Mortgage Rates Get Affected by Credit Rating

Previously, credit ratings mainly decided whether a person could get a home loan sanction. The rate that would be offered did not depend on the FICO marks unless in case of subprime lending. Mortgage rate today is generally affected by credit rating. It is drawn from MYFICO.com that customers who have a credit rating ranging from 620-639 gets a bigger interest of 1.59% than those people having credit marks 760 or above.

Choose Your Plan Accordingly

Mortgage rates are greatly influenced by credit count in several aspects. The plan of your choice is mainly responsible for it. The following gives the picture:

  • Freddie Mac and Fannie Mae
  • According to this risk based pricing are applied in 2008. Under the Fannie-Freddie strategy major takers were given loans against proper mortgages. Even then there was an increase in mortgage defaults. Big mortgage houses were asked by the government to pull out more fees to make-up for the loss. The mortgage biggies were against raising the borrowing amount of all customers on the whole. They targeted the risky clients for paying more. Therefore risked mortgages came at par with the normal mortgage.

    Borrowers who had lower credit ratings were charged under Fannie-Freddie program. According to this for each 20-point drop in rating, the fees would rise. There are ranks which ranged from 620 or lower to 740 or higher. Surcharges levied could be a discount of .25% or an addition of 3.25% on the loan price.

  • VA, FHA and USDA
  • Federal authority do not permit pricing based on risk in their mortgages. A veteran acquiring a VA mortgage and with a 600 rating on credit will have similar subsidy like a vet who has a 700 FICO. Whether it is a premium of the upfront mortgage type or it is funding amount the USDA and FHA loans do not vary on credit ratings. It is to be remembered that a low FICO makes you pay more where government loan is concerned. For government loan sanction applicants need to follow the basic rule. However lenders can always employ higher criterion if they wish to. Often it is seen that the lenders are more restrictive and strict than government agencies. The borrowers who do not have a choice end up paying at higher rates.

  • Jumbo Mortgages
  • Freddie Mac or Fannie Mae does not sold portfolio, conforming and Jumbo mortgages. Government too does not support them. Investors mainly buy them or lenders who make them keep them in collection. Individual lenders or investors are free to set up their own rules. One such pricing of a jumbo lender is:

    Fico with less than 720 gets an addition of .5%

    FICO within 720-759 gets an addition in fees of .125%

    FICO within the range 760-800 gets no adjustment

    FICO with a more than 800 scoring gets a fees reduction by .5%

This proves that there is a vast range of difference in the rate. An insistent shopper targeting a lower mortgage has a chance to benefit here.


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