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What Really Controls Mortgage Rates

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hat affects your mortgage rate? There are many factors that go into what rate you get from a bank. Some things to consider, that you might not know. The following are factors that affect your mortgage rates:

1. Is it a purchase, rate and term refinance or a cash-out refinance? Banks will charge a higher rate for cash-out refinancing if the loan to value is over 60%.

2. LTV (Loan to Value) affects rates as well. Usually loans under 60% have one rate, 60% to 75% have another, 75% to 80% another and so on.

3. The Loan program such as a 30 Year fixed as a lower rate than a 15 Year Fixed.

4. Credit score in another factor. Depending on this being a purchase or a refinance credit score under 680, 680 to 700, 700 to 720, 720 to 740 and 740 and above have different rates.

5. The State and County that the property is in. Each County will have a different factor that banks use to determine rates.

6. The type of property, Primary residences are the lowest, followed closely by second or vacation homes and finally the most costly are investment properties.

7. Classification of property. A single

family home is cheaper than say a condo .

8. If you escrow taxes or not. Most banks will charge a onetime fee if you do not escrow at least your real estate taxes .

9. Debt to income ration or DTI, earning versus the cost to carry the home. We use the PITI, Principle, Interest, Real Estate Taxes and Homeowners Insurance.

Many of you contact me asking for a quote when shopping for a rate. I only quote a rate when I know all the factors. Recently I had a borrower that I quoted a 4.375% rate. After we first spoke they called me back and said they saw a rate for 3.875% on a 30 year fixed. I explained that if you look at the APR you will see a much higher number because they are including 2 points in the mortgages closing cost. They also were doing a cash-out refinance and were waiving escrows. When they followed up the other bank was offering 4.5%. Another thing to look out for is the no closing cost option. You will pay for this with a higher rate sometimes as much as a .5%.

If you have any question please email me Jon Starr at

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