Personal Factors That Impact Mortgage Interest Rates

Scott "Git R" Dunn, USAF Ret • October 26, 2023

Be Sure All Is Taken Into Consideration

There are many factors that impact mortgage interest rates. The two main areas are market driven and borrower driven. For this discussion we're going to cover the personal factors that determine a rate. I can't tell you how many times loan officers receive a phone call and the person on the other end simply states, “What is your rate today”? What most people don't understand is there are a lot of personal factors that go into determining a rate. These are the most common factors listed below.

Credit score. A higher credit score can earn you a lower mortgage rate. Lenders want to feel confident that you can and will repay your mortgage.
Loan-to-value (LTV) ratio. LTV compares the amount of your loan to the price of the property. A lower LTV typically results in a lower mortgage rate. Basically the more you put down the more “skin” you have in the game
Debt-to-income (DTI) ratio. Your DTI is the sum of all of your monthly debts divided by your gross monthly income. This helps paint a picture of borrower’s financial stability. The lower this ratio is the better a borrower’s rate will be.
Discount points. These are fees are paid upfront to the lender at closing in exchange for a lower mortgage rate. This is something you would discuss with your loan officer to see if it would make sense to “buy down” the rate. This is determined on how long you plan to stay in your home.
Occupancy status. How the property will be used? There are 3 types: primary residence, second home or investment property. How the property will be used can significantly impact the rate. Usually if the home will be your primary residence, the rate will be lower.