What factors determine the rate you receive?

Here are the factors that affect the rate you will likely receive and a graph to better illustrate these factors

home loan rate factors

• Economic Factors and Current Fed Rate Policy: Inflation expectations and concerns primarily drive rate movements. During periods of high inflation, mortgage rates increase because investors in mortgage-backed securities (MBS) demand a higher return to match inflation's pace. Various other economic elements, such as job reports and Fed rate policy, also significantly influence these rates.

• Home price, loan amount, and down payment percentage: The amount you'll borrow and the loan-to-value ratio are determined by subtracting your down payment from the home price. Generally, larger loan amounts tend to secure better rates, and a lower loan-to-value (LTV) ratio results in more favorable rates, particularly for conventional loans.

• Regarding refinancing: the interest rate is significantly influenced by the loan to value (LTV) ratio. LTV is determined by comparing the loan amount to the appraised property value. Conventional loans with higher LTVs tend to have higher interest rates.

• Loan term: Shorter durations, such as 15-year or 20-year terms, generally come with lower interest rates compared to a 30-year term.

• Interest rate type: There are two primary types of interest rates: fixed and adjustable. Fixed rates remain constant over time. In contrast, adjustable rates start with a fixed period and then vary according to market conditions. For instance, a 5-year ARM loan maintains a fixed rate for the initial 5 years, after which the rate will adjust starting from the 6th year.

• Loan type: Various loan categories, such as Conventional, VA, FHA, and USDA, offer different rates. Government-backed loans like VA, USDA, and FHA often have rates that are up to half to a full percent lower than those of conventional loans.

• Credit score: Derived from credit report details obtained from the three major credit bureaus: Transunion, Equifax, and Experian. Each bureau uses a unique formula to calculate a credit score—often referred to as a Fico score—based on your credit history, credit usage, and available credit. Lenders consider the lowest middle score among all borrowers. A higher credit score leads to better rates.

• Property type & occupancy status:  A primary residence typically receives the most favorable rate, followed by a second or vacation home, and then a rental property, which generally has higher rates. Condos, manufactured homes, and properties with larger rural acreage usually incur even higher rates.

• Increased lender fees: Paying points and additional lender fees generally reduces the interest rate offered. For instance, a loan with no lender fees can have a rate that is half a percent or more higher than a loan where 2 points are paid (1 point equals one percent of the loan amount).

• Numerous online lenders employ manipulation tactics to present low rates while concealing higher lender fees. People frequently focus solely on the rate itself, overlooking the associated costs, which makes these lenders seem like they offer the "lowest rate" when, in fact, they do not. They are deceiving you.

• Paying points to lower the interest rate is advisable only when rates are low. During times of high rates, such as in Fall 2025, paying points to reduce the rate can take 4-6 years to break even. This is because the higher lender fees paid at closing will lower the payment, but it takes time for the reduced payment to offset those fees. As experts anticipate rate improvements in the next 6-18 months, many people will likely refinance to a lower rate before reaching the breakeven point, making the lender fees paid to reduce the previous rate a wasted expense.

Another common problem with getting a rate quote

It's common to receive a quote from Lender A on Monday, Lender B on Tuesday, and Lender C on Wednesday. Rates can fluctuate daily, sometimes even several times a day. Thus, if you don't obtain all your quotes simultaneously, you won't have precise information

and might choose the wrong company.

Many lenders intentionally advertise lower rates on their websites to encourage you to stop comparing options.This is particularly common with purchase loans, since you probably won't be able to lock in that rate today.

THE ONLY RATE QUOTE THAT MATTERS IS THE DAY YOU LOCK.

DID YOU KNOW? Generally, you have the flexibility to choose any interest rate or total lender fee you prefer. However, it's important to note that choosing one will impact the other. If you opt for lower lender fees, your interest rate will increase. Conversely, if you desire a lower interest rate, your lender fees will rise!

Be cautious of a lender offering rates and closing costs that are much lower than others. All lender rates originate from the same mortgage-backed securities market

(MBS) - with larger lenders usually requiring a higher profit margin, resulting in higher charges to cover their increased overhead.  The larger the lender, the greater their overhead. They need to charge more to fund expensive TV advertisements and stadium naming rights.

Smaller, well managed lenders --like a mortgage broker are often much cheaper than big lenders. mainly due to much lower overhead.

What you pay is the wholesale cost of money plus the lender markup--and all lenders--big and small-- have pretty much the same cost of wholesale funds.

So it's their markup, or gross profit that decides how much that lender charges on a given day. the markup is a combination of points, origination fees and other garbage fees like underwriting, admin, funding fee, and super high loan processing fees.

And another way a lender increases their profit is by charging a much higher than market rate while reflecting super low lender fees. However the rate is way way higher than it should be. Higher rates means more money flows to the lender upon delivery of the loan.