If you are purchasing your first home in North Carolina, one of the most important things to understand are mortgage rates and how they impact you as a buyer. In this week’s Home Matters Blog, we explore all that is interesting about interest rates so you can make the right financial decisions for your future.
What is Interest?
Simply put, interest is a percent of the principal (the amount still owed on your loan) of your borrowed money that your lender charges you to use it. Interest is common in credit cards and most types of loans like business loans, car loans and most famously, mortgage loans.
Why Do Rates Go Up and Down?
If you have been watching the news, you may have heard about interest rates going up and down throughout the year. What gives? Interest rates change based on both supply and demand and on the Federal Reserve, which controls interest rates on mortgages, personal loans and even savings accounts. The Federal Reserve lowers rates to encourage citizens to borrow, and raises them as demand increases. Mortgage companies follow these leads when setting their mortgage rates, which means the rate you get on your mortgage relies on a lot more than just you.
What Do Lenders Consider?
Lenders assess your ability to pay back the money that you borrow. To do this, they review your financial standing, your job history, credit history, credit score and much more. This financial information helps them to determine whether you might be a high- or low-risk customer. For example, if you are in good financial standing, have a good job history and a good credit score with no delinquencies on your credit record, you will get the most favorable rates. The lender can see that you are very likely to pay your loan back as dictated by the terms. However, a buyer who has financial issues such as a low credit score, a poor credit history or an unreliable job history might get a higher interest rate as they are considered higher risk.
How Do I Get the Best Rate?
While interest rates might seem confusing, getting the best rate on your mortgage loan is simple if you follow these steps:
- Pay all of your bills on time to establish a good payment history.
- Pay down your existing debt to lower your debt-to-income ratio.
- Check your credit report for any mistakes or discrepancies and work with the credit companies to fix any problems.
- Avoid closing long-term accounts—the longer your credit history, the better.
- Consider a loan with a shorter term. 15- or 20-year mortgages often have more favorable mortgage rates.
- Shop around for a lender just like you would for any other purchase.
Are you ready to take the next steps and learn more about buying a home? The NC Housing Finance Agency has plenty of resources to help make the right financial decisions for you. Learn more about all the ways the Agency can help you make home ownership happen at www.NCHomeAdvantage.com.