How Is Mortgage Interest Rate Computed?

What determines the mortgage rate of every borrower? Although it may seem as if banks offer the same mortgage rate to their clientele, the truth speaks otherwise. If you are like most people, you would want to find a mortgage loan whose interest rate will not burden you for life. But isn’t it difficult to negotiate about mortgage rates when you don’t have any idea how it’s computed? Even the savviest shopper will not be able to make it happen.

If your lender knows exactly how they could charge you with interest, you should have an idea too. Armed with information, you’d be able to negotiate to get the best deals and perhaps even ask some of the most difficult questions about the mortgage. Your knowledge will be your power. How is it computed? Look into these factors to find out.

Credit Rating

How predictable can it be to determine your credit score? The answer is pretty simple. When you pay your creditors the right amount each month on a regular basis, you don’t have to worry about your credit rating. Your consistent payments will ensure that you have a positive rating from the creditor’s end. Thus, potential mortgage lenders will not worry that you don’t be able to pay them the amount due when you’re due. Get a credit report before you make any mortgage loan applications, so you’ll have more time to settle payments to creditors you haven’t updated.


If you are thinking living in the city or the suburbs will not make a difference in your mortgage rate, you better think again. Remember that the area of your home will speak of whether or not you live in a peaceful and secured environment. When you live in an area that’s high risk, you can only expect mortgage loan interests to be skyrocketing. After all, these lenders only want to ensure that their investment on your property is kept safe at all times.

Market Value

How much is the selling price of your home? A house that is well-maintained or has recently been renovated to make it looking pleasing to the eye will make mortgage lenders offer you a good loan at the right interest rate. The market value of the house will get you the loan that you want without making you pay a high-interest rate. The logic here is simple. If you can’t pay the loan, the lender will have the chance to sell your house at the price that they want.

Indeed, mortgage loan application can be quite tight in the beginning, but knowing more than you should will help save you on costs in the long run.

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