A major factor that influences first-time home buyers decision on a mortgage is the interest rates being offered on a specific loan. But what you may not understand is what exactly interest rates are and why they change. So, to help clear up some confusion, your local Austin mortgage lender with Austin Capital Mortgage Inc., has defined what mortgage rates are, explained why they fluctuate and listed how these rates could affect your mortgage.
What Are Interest Rates?
Interest rates are usually expressed in terms of a percentage and are added on to the amount you are borrowing from your lender for your mortgage. This amount is charged every month and directly affects your mortgage payments.
Why Do Interest Rates Change?
Interest rates can change for a number of different reasons whether it be from economic factors or dependent on the risk level of the borrower.
Economic factors that influence a change in interest rates overall could be the level of unemployment in a particular area, wage inflation, supply, and demand, as well as the confidence of consumers.
But why do interest rates on an Austin mortgage vary depending on the person? This deals with the level of risk on the borrower. Two main factors that affect an individual’s interest rate is their credit score and their income. Having a low credit score means you are a riskier borrower because you are either in too much debt or have missed payments in the past. This makes it less likely for lenders to work with you for fear that you could default on your payments. So, instead of rejecting risky borrowers altogether, some lenders charge a higher interest rate.
The same goes for having a low income. If you do not have a lot of money in your bank account due to a low income, this makes it more difficult to get approved for a loan because this too shows lenders that you might not be able to make payments every month towards your mortgage.
How Interest Rates Affect Your Mortgage
These factors directly affect your mortgage because you could be charged more or less depending on your finances. So, if you have a low credit score and a low income, work on paying off high-interest debt to raise your score and be sure and have a lot of money in your savings before you begin the Austin mortgage application process.
For more information on interest rates or to begin your mortgage application, please contact your local Austin mortgage lender with Austin Capital Mortgage Inc., at 512-891-0778.