Mortgage rates depend on several factors, and rates can vary by a home’s location, the borrower, as well as the lender. When lenders determine mortgage rates, they must take into consideration a borrower’s financial situation, the current economy, and their overall expenses. If you are interested in buying a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and want to have a better understanding of what determines your mortgage rates, Foundation Mortgage can help. Read on to learn more about why mortgage lenders have different rates.
Why Do Rates Differ From Lender To Lender?
Even though interest rates are primarily impacted by both the national and world market, there are other reasons that mortgage rates are not the same amongst all lenders. Mortgage lenders all have different types of costs to consider, and certain lenders are willing to take on different levels of risk. The types of costs lenders must consider include the overall cost of the loan, closing costs, etc. Mortgage lenders also need to consider the financial status of each borrower, including credit score, the down payment amount, and debt-to-income ratio, (DTI). Mortgage rates also are determined by location and depend on the local economy. The economy of your state will affect the rate of foreclosures, which causes lenders to raise mortgage rates. If an area has a higher rate of unemployment, housing costs would be more likely to fall, which could elevate mortgage rates.
The Costs of Creating a Loan
One major factor that determines mortgage rates is the overhead cost of creating a loan. There are certain expenses that a mortgage company must pay regardless of whether a borrower closes a loan or not, such as the cost of marketing, the cost of renting office space and paying employee wages, insurance costs, etc. If a company has higher closing numbers, they will likely be able to offer lower interest rates. However, if a company tends to have lower closing numbers, they will have to cover their costs by offering slightly higher interest rates in order to maintain profitability. It essentially depends on the amount it costs a business to operate their company, and how much commission a loan officer needs to make.
How Does The Market Affect Mortgage Rates?
There are also certain market factors that impact mortgage rates, causing rates to fluctuate due to economic factors such as:
- Inflation – When the prices of goods and services increase, lenders also tend to raise interest rates to compensate due to inflation.
- Economy – When the economic outlook is optimistic and unemployment is low, mortgage rates typically rise. Conversely, rates tend to decline when unemployment rates rise and the economy hits a downturn.
- Employment – During a period of recession, when unemployment is higher, mortgage rates tend to decline.
If you are located in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and want to learn more about what determines mortgage rates, contact Foundation Mortgage for a consultation.