How are Interest Rates Determined?

What’s the current rate? As loan officers we get this question daily. While it seems like an innocuous question that should be simple enough to answer, there are many variables that play a role in determining the “current rate.” While there is no such thing as the “current rate,” there is a current rate for your individual situation. In order to have the best possible rate, it is important to understand the various variables that play a role in rates.

The largest dictator of interest rates is the one that everyone reads in the news or sees on TV. This is the 10- year US Treasury yield. This factor is not specific to any one borrower, and dictates the baseline for rates on a broad scale. The lower the 10-year Treasury yield, the better mortgage interest rates will be as a whole.

The other factors influencing interest rates are individualistic. The most critical of the borrower specific factors is credit score. The better your FICO score, the better rate you will be eligible for. The remaining factors include amount of down payment, loan type (FHA, conventional, etc.), occupancy (primary, investment, etc.) debt-to-income ratio, and loan purpose (purchase or refinance). All have a similar weighting when determining the current rate.

Each variable outlined is critical to determining the interest rate you are eligible for. If you have a question about the interest rate you are eligible for, give us a call today!!

Let me know if you have any questions or would like any estimates! Stay healthy!

by Andrew Augustyniak, Branch Manager/Loan Officer, Peoples Mortgage