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Home Buyer

Three Surprising Things That Can Drive Up Your Mortgage Rate

If you’ve educated yourself on the home buying process, you’re probably aware of the financial benefits of a low mortgage rate, such as increased purchasing power and a lower monthly payment.

You might even acknowledge the positive impact a good credit score can have on your rate, and postpone buying a home until your credit score improves. 

But a low score isn’t the only thing that can drive up your mortgage rate. So, it’s important to understand other factors that affect your rate. If you’re thinking about buying or refinancing a home, here’s a look at four things that could increase costs.

1. You’re not planning to live in the property

A rental property can be a profitable addition to your investment portfolio. But whether your plans include finding a tenant to pay the mortgage for you, or buying and flipping a home, you could end up paying a higher mortgage rate than someone purchasing an owner-occupied residence.

Although it is possible to finance investment properties, these are riskier loans because there’s a greater chance of default. For that reason, these loans typically carry higher rates to absorb the potential risk.

There is, however, a provision if you’re thinking about buying a home for a loved one who can’t work or who doesn’t have enough funds. Give one of our loan experts a call to see if you qualify for the Family Opportunity Loan program. 

Under this program, you can purchase a property and receive owner-occupied rates, even if you don’t intend to live in the home.

2. You’re putting up less cash 

Low down payment mortgages can help you purchase a home with as little as 3% to 5% down. But while these are attractive programs, a low down payment means that your property’s loan-to-value (LTV) ratio will be higher than the LTV on a property purchased with 20% down. Because low down payment mortgages are riskier, these borrowers are often charged higher rates to compensate.

3. You’re cashing out your equity

Since refinancing creates a new mortgage to replace an existing mortgage, borrowers can usually receive the same competitive mortgage rates as someone applying for a new purchase loan. The only exception is when a borrower chooses a cash-out refinance.

This involves borrowing some of your home’s equity. Because cash-out refinances pose a greater risk to lenders and increase your mortgage balance, these types of loans often carry higher interest rates than regular refinances.

Bottom Line 

Your mortgage interest rate plays a big role in your monthly payment. And if you’re trying to keep your expenses within a certain range, getting the lowest mortgage rate is a priority.

Our loan experts are dedicated to helping you find the most affordable home loan possible. If you have any questions about loan products, interest rates, down payments, or anything else, give us a call and we’ll happily schedule a consultation.