Loans, Insurance & credit card information

A lender weighs a great number of factors when setting a home loan rate for a borrower. Even though the lending institution may state a certain interest rate, mitigating circumstances may cause the lender to approve a home loan rate that is higher or lower than what a lender advertises. Certainly, if the rate is higher, the borrower has the option to decline the offer, but he may not find a better rate elsewhere, if at all.

Circumstances affecting loan rate

When a lender advertises a particular interest rate, in most cases this is the home loan rate for the crème de crème or best customers. Any number of factors may cause the lender to adjust this rate higher or lower although lower isn’t usually an issue. In most cases, the lowest rate is the one advertised, but some of the factors that may affect a borrower receiving that rate include:

Credit history

Employment stability

Income

Down payment

Age of the home

Type of home

Purpose of home

Other factors may also compute into the determination of the home loan rate, but these seem to be the most commonly applied standards. From a realistic viewpoint, a borrower with a good credit rating who has a credit history for at least the past two years will receive a more favourable rate than one who has derogatory credit. In addition, lenders consider factors such as whether the borrower is going to live in the house or is purchasing it as an investment.

Does location affect the interest rate?

Though this may appear to be discriminatory, some lenders do actually use this type of strategy to dissuade buyers from purchasing in areas that they would prefer not to finance. It’s similar to the time during the 70′s when mortgage companies would blacklist certain areas because they feared that in the case of foreclosure, they would have difficulty reselling the property. This practice was considered discriminatory, and they had to stop. The problem with the home loan rate being based on the location of the property is that it is a subtle issue and one that is not easily proven since it is used in combination with other factors. It is never a primary determining factor, but one that is used in combination with other issues such as credit or employment history.

The variance in rates among lenders

Each lender sets his own home loan rates independently of other lenders, but so that they are competitive. What this does for the potential borrower is afford him the opportunity to shop for a better home loan rate based on his individual financial history. A factor that is a major issue for one lender may be a minor one for another, and a difference of even.25 percent less in the home loan rate can have a major impact on the total cost of the loan. Shopping around before accepting a home loan rate from a lender can potentially save you thousands or even hundreds of thousands of dollars over the life of the loan.