One of the most important decisions you make in your life is regarding your finances. If we talk about financing your home, there are numerous options to opt for. For instance, mortgages. However, it is essential to know how mortgages work, specifically in Texas, Dallas, and how mortgage rates can change over time.
Thus, in this article, we are going to tell you everything you need to know about mortgages, and how certain circumstances can impact mortgage rates so that you can get your hands on the best mortgage rates Dallas.
Inflation refers to the increase in prices over a specific period of time, which affects the whole economy of any specific country.
As inflation can alter the purchasing powers of citizens, it is one of the major factors that can impact the mortgage rate of any state.
Because of this decrease in the purchasing power of people, mortgage lenders have to maintain interest rates at a level that will balance off the purchasing power through inflation. Moreover, lenders will also have to make sure they are earning profits.
For instance, if your mortgage rate is 6%, but the level of annual inflation is 3%, the return on that specific mortgage loan in terms of the purchasing power will be only 3% in this case.
This is exactly why mortgage lenders and other loan lenders keep a close eye on the inflation rates, and then alter or increase their mortgage rates accordingly.
2. Monetary policy
The monetary policy of any country has a great impact on the mortgage rates. Monetary policies are established each fiscal year, by the Federal Reserve Bank.
These policies can impact the economy as a whole, as well as interest rates and mortgage rates. The Fed Funds establish the interest and mortgage rates each year, as well as adjust the money supply either upward or downward.
Such upward and downward movements can impact the interest rates that are available to the borrowing public. In most cases, an increase in the money supply will put downward pressure on rates.
3. Economic conditions
The economic conditions, specifically economic growth, can impact mortgage rates. In a growing economy, mortgage lenders have comparatively more mortgages to lend to borrowers.
However, in the case of declining economic growth, there will be a decrease in the demand for mortgage loans, which is why there is downward pressure on the interest rates that are offered by mortgage lenders.
4. Credit scores
Your credit scores can either get you a good mortgage rate or prevent you from receiving a mortgage at all.
Credit scores refer to credit histories and show your ability to pay back the amount in a specific period of time. These are basically calculated based on the information on your credit report and payment history.
In this case, an individual with a higher credit score will be able to receive lower mortgage rates, as they are quite reliable in the case of returning back the borrowed loan as portrayed by their credit score.
On the other hand, individuals with lower credit scores will be unable to get their hands on lower mortgage rates, or may even be rejected for a mortgage.
This is why it is imperative to sort out any credit dispute issues and resolve them, before opting for a mortgage from a mortgage lender.
5. Loan term
There are numerous types of loans- short-term loans and long-term loans, in most cases. These term periods are basically when you will be required to repay the loan. Thus, what loan term you go for is a factor that can impact the mortgage rate.
In this case, the shorter the term loans, the lower interest rates you will receive. But, this will also include higher monthly payments.
6. Loan type
Two of the most common loan types you will come across are fixed interest rates and adjustable interest rates.
Fixed rates don’t change over time, while adjustable rates can. Adjustable interest rates generally include an initial fixed period, after which they can either increase or decrease.
7. Down payment
In most cases, the larger the down payment you pay upfront, the lower the interest rate. So, the rule is, if you are able to pay a downpayment of 20% or more, you will be able to get your hands on low mortgage or interest rates.
Let’s say, for instance, you are unable to pay the above-stated percentage down payment. In this case, you will be required to purchase mortgage insurance.
This insurance will protect the mortgage lender, in case the borrower is unable to repay the borrowed amount. When a borrower purchases this insurance, they can get their hands on lower mortgage rates. But, will also add to the overall monthly mortgage loan payment.