Factors Determining Mortgage Rate

Understanding what dictates your mortgage rate gives you the power to change the rate and in doing so can save you thousands of dollars over the lifespan of a mortgage.

Those tiny incremental percentage differences in a mortgage may not seem like much, but over 30+ years they really and truly add up. So, for those shopping around, here’s an insight into how the rate is calculated. Once you understand this you can then work towards making yourself suitable for a lower rate and saving money.

Credit Score

Obviously, your credit score is going to affect the rate that you pay, however many people don’t know how much of an effect it has. As you may have guessed, the higher the score, the lower the interest charged. The increments that lenders decide on will increase your rate by a certain amount of percentage points. This is usually calculated on the FICO credit scoring system, which will give you a good idea of the differences between scores and is worth a look online.

Down Payment or Deposit

This also greatly affects the rate and also the amount of money you pay back. Less money as a down payment is a signifier to the lender that the loan may be a little riskier and so to account for this the interest rate is higher. In some countries if you put a down payment of below a certain percentage you also have to cover it with insurance. This is to prevent the risk if the loan is defaulted upon. This is added to the interest rate and can cost a lot over the lifespan of a mortgage.

Area or Region

Some areas simply offer lower rates than others and there’s no reason why, that’s just the way it is. However, though the rates are different they are not huge disparities and most people don’t tend to notice them.


Some lenders will just charge more than others. This can be for a wide range of different reasons, from financing structure to the lending program they participate in. Some will provide one person with a low rate and another with a higher one and that’s why shopping around is essential.

Do remember you are looking for the best loan for you and not the lowest rate. Some mortgages may have a low rate but due to other factors may cost you more than you would expect as there are additional fees. APR or the annual percentage rate is a good way of checking this out.

Taking out a mortgage is a big step but one that allows you a home and often costs less than renting. So take your time and whether you are looking for a quick house sale, browsing or are a first time buyer, these tips can help you lower your loan costs.

Cormac Reynolds writes for YouSellQuick a UK company that allows you to receive up to 100% for the price of your home.