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What Affects Mortgage Rates?

Your mortgage rate is affected by a number of factors, such as your credit score, the type of rate you choose and your property's location. By knowing more about these factors, you can improve your chances of qualifying for a better rate.

Credit score

Your credit score, also known as your FICO score — named after the company that created the scoring model — has a big influence on your rate. That's because it tells us about your credit history and how well you've managed it. The higher the FICO score, the better it is — and the more likely it is you'll qualify for a lower rate.

Learn about the impact of your credit score

Rate type

There are two kinds of mortgage rates: fixed and adjustable. Fixed rate mortgages don't change, which means your monthly payments will stay the same over the life of your loan. Adjustable rate mortgages (ARMs) typically start at a lower rate, but change over time.

Learn more about rate types

Loan type

Interest rates also change based on the loan type you choose. While conventional loans are the most common, people who need a larger loan may choose a jumbo loan. Similarly, people who qualify for government programs like Federal Housing Administration (FHA) or Veterans Affairs (VA) loans may choose those instead — though they have specific eligibility requirements.

Learn more about loan types


There are two kinds of points. Mortgage points are fees you pay at closing to reduce your interest rate. If you plan to stay in your home long term, mortgage points might make sense for you. Lender credits (also called rebate points) give you reduced closing costs in exchange for a higher interest rate. If you're short on cash, lender credits can help you cover closing costs.

Learn more about mortgage points

Loan-to-value ratio

Loan-to-value (LTV) ratio is the amount you want to borrow divided by the value of your home. The less you need to borrow, the lower your LTV is and the lower your interest rate will be.

Calculate your LTV ratio


Your LTV ratio is:


Debt-to-income ratio

Your rate is affected by your debt-to-income (DTI) ratio, which is the percentage of your income you use each month to pay off debts. A DTI of 36% or less is ideal, and may help you qualify for a mortgage with a lower interest rate. You can bring your DTI ratio down by paying off your credit cards and reducing debt.

Calculate your DTI ratio


Your DTI ratio is:



Your rate can also be affected by the property type (think house vs. condominium) and its location, but also how you plan on using it. For example, a single-family home used as your primary residence may qualify for a lower rate than a single-family home used as an investment property.

Loan term

Your loan term is the period of time you have to repay your mortgage. Loan terms can vary from 5 years to 30 years, with 15-, 20- and 30-year periods being the most common. In general, shorter loan terms have lower interest rates, but higher monthly payments.

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