The current market situation is indeed very ideal for mortgage refinancing. The rock-bottom mortgage rate of interest is enticing many of you to mull over refinancing. But surprisingly, many of you find that the advertised mortgage refinance rate need not necessarily be the same as that of the actual mortgage rate that is offered to you. It is seen that the mortgage rate that is offered to you may vary on a given day by as much as a full percentage point or more and this variation depends on several factors. Here we discuss about the factors that can influence the mortgage rate offered to you.
Your credit position
One important determinant of mortgage rate offered to you is your credit position. The lower your credit score, higher will be the mortgage refinancing rate. Two persons with credit scores of 700 and 750, with other conditions remaining the same, will be treated differently and will be offered refinancing at different rates.
Size of the loan
Another factor that influences the mortgage rate is the loan to value (LTV) ratio. A loan to value ratio is defined as the amount of outstanding loan that you owe as a percentage of the appraised value of the loan. If you have a very low LTV ratio, rate on your mortgage loan will be comparatively low and in case your loan to value ratio is quite high, your loan to value ratio will be high too. If your loan to value ratio is more than 80%, then you are required to pay the mortgage insurance. You have the option to pay the insurance amount upfront or over the years. If your LTV ratio is 60% or less, then there will be no rise in the mortgage refinancing rate.
Type of refinancing
Another factor that influences the mortgage rate is the type of refinancing. In case of cash out refinancing, you take out a home mortgage loan by cashing on your home equity. The rate of interest on cash out refinancing loan is more than the rate on a comparable refinancing.
The length of loan-lock
While taking out a mortgage loan or refinancing, it is a common practice to lock the mortgage rate. Here it is to be noted that longer rate–lock period leads to high refinance rate. Depending on whether the rate-lock period is 30 days to 60 days, the variation in the mortgage rate varies from 0.125% to 0.375%.
Type of home
Another factor that influences the mortgage rate is the type of home. There are various types of homes such as single family home, multi family home, condominium, townhouse etc. Risks associated with different types of home vary a lot. For instance, risks attached to a condominium are higher than the risks associated in a single family home. So quite obviously the mortgage rate attached to a condominium is higher than the mortgage rate on a comparable single family home.
These are the main factors which are mainly responsible for different refinancing rate.