July 8, 2021
What forces affect FHA home loan interest rates? If you are worried about getting the best FHA loan rate, you should know what factors go into the mortgage rate you are offered by a participating lender.
There are multiple factors that influence rates, some are market forces but some are directly in the borrower’s control–at least in terms of the rate you could be offered.
The most important thing to understand about rates–especially home loan interest rates–is that they fluctuate frequently. This means that some aspects of the rate you are offered are beyond your control.
Other aspects are in the borrower’s ability to change for better or worse. What do we mean?
Your Choices Can Affect The Interest Rate You Are Offered
The choices you make as a consumer can have an effect on the FHA loan rate offered. How you manage your credit is a big factor–if you are late paying or have missed payments, your credit score suffers but your ability to get a better rate suffers too.
It’s not just the score that counts–it’s the history of your payments, too.
We’ll repeat that for emphasis–a borrower’s credit score is an important factor in determining the interest rate offered, and your history of payments counts, too.
That is why financial advisors tell consumers to work on their credit by establishing a 100% on-time payment record and good financial management at least a year before filling out a home loan application.
Work hard on your credit score, get your finances in order, then apply for the loan. Not before.
What other factors can affect mortgage loan interest rates?
Market Activity Can Affect Rates
Investor behavior (not all investors, just in certain sectors like Treasuries) can have an effect on daily mortgage rates. Investors react to breaking financial news–those reactions (depending on what they are, the severity, and other variables) can influence rates one way or the other.
These investors do not directly work with mortgage rates, but their investment choices can influence rates.
Lenders Can Also Influence The Rate You Are Offered
The market forces we talked about earlier? They don’t automatically translate into rate changes for an individual financial institution. Each decides what to do about the daily rates based on that day’s rate trends.
Depending on whether the rates move higher or lower, some may choose to reprice their mortgages with a different interest rate. The thing to remember?
Not all lenders do so–some choose to pass on the savings in a lower rate or the increased costs of a higher rate to the borrower in the form of adjusted closing costs.
You want to know if your chosen lender’s rate is as good as it seems–or whether the lender has upped the price on certain closing costs as a result of rate fluctuations. Shopping around for a lender is a good idea, especially where rates offered are concerned.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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