Why are some interest rates higher
An interest rate depends upon several factors. For instance, your rate will be higher if you have poor credit
Your interest rate can be higher if your debt-to-income level is high. Some lenders allow debt-to-income ratios of 50% or even 55%. However, the interest rates on these loans are higher.
Some people have purchased homes using "no-documentation" loans in order to qualify when carrying mortgages on 2 properties. Lower doumentation loans carry higher interest rates. Check with your mortgage professional to see if you qualify for a lower rate.
One of the most importants factor when evaluating a mortgage application is the prior rental or mortgage history. Although a less than perfect history can initially result in a relatively higher rate on your mortgage, after establishing a pattern of on time payment, you will not only improve your overall credit profile and score, but may be eligible to streamline refinance to a lower rate mortgage, even if interest rates have not improved in the open market.
If you purchased a new home with a higher interest rate in the last 2-3 years now is a great time to talk with your mortgage broker to examine your situation to see if you may now qualify for lower interest rates rates. This is often the case with sub prime borrowers who have made payments on time and worked at improving their credit scores.
If your credit score is under 500, you are more than 90 days behind on your mortgage payment, or you have a received a notice of default or foreclosure, you can expect that your interest rate will increase dramatically from what you are paying currently, often into the 11% to 12% range.
Sometimes you can choose to add a pre-payment penalty to your mortgage which can decrease your interest rate.
Interest rates on properties that are not occupied by the owner are generally higher than those on a primary residence.
Interest rates are also based on if a loan is a portfolio loan or can be sold and purchased by Fannie Mae or Freddie Mac. Portfolio loans typically are held by the issuing bank and are higher than those sold and purchased by Fannie Mae or Freddie Mac.
The higher the risk of the loan, the higher interest rate you will pay. Also, subordinate liens in 2nd position tend to have higher interest rates but lower loan amounts to avoid paying PMI on just one loan.
Your interest rate can be adjust upward, if the Loan to Value (LTV) or combined Loan to Value(CLTV) exceeds 80%.
If you are taking out a second mortgage or a home equity line of credit, you should expect to have a higher interest rate. These loans typically have smaller loan amounts, and are packaged together to be sold in the secondary market.
First mortgages with smaller loan amounts will generally have higher interest rates than larger loan amounts on 1st mortgages. Many lenders price these a little higher because there is not as much profit in smaller loan amounts yet there is an equal amount of risk to them.
Interest rates vary based off of risk, and therefore the riskier the loan being made the higher the interest rate will be. Some other reasons rates can vary is due to mortgage insurance, as a loan with lender paid mortgage insurance will carry with it a higher interest rate to compensate for not having mortgage insurance when the loan to value exceeds 80%.
One of the best ways to lower your interest rate is to raise your credit score. The difference in interest rate between a 620 FICO score and a 720 FICO score can often be 2% or more. Ask your preferred mortgage professional how easily your credit scores can be improved.
Interest rates will change due to ever changing market conditions. Some of the lower rates are tied to short term bonds, just as some of the higher rates are tied to longer term bonds.
Mortgage interest rates that are secured by cooperative apartments may be higher. Coop owners in metropolitans may have to get home loans with interest rates that are 1/8 higher than other property owners.
Adjustments to interest rates are lenders protection in determining risk or default. Because most loans are sold, adjustments to rates offer safety or protection for a bank/investors return of investment.
If you choose interest only, or to waive escrows you will have a higher rate typically.
If the risk to the lender is higher then the risk gets passed on to the borrower in the form of a higher rate or fees.
If you have a loan that uses lender paid mortgage insurance, your interest rate may be higher.