interest rates calculator

There’s been a lot of talk about interest rates over the last few months and both current homeowners and prospective home shoppers are taking advantage of the moment by refinancing or making a buying decision.

However, it’s important to remember that interest rates will fluctuate for individuals based on a number of factors. Knowing which variables impact a mortgage interest rate can help a homebuyer better prepare for the process.

Credit Score

The best – and often lowest – mortgage rates go to borrowers with the highest credit scores. Lenders consider this number as a barometer to determine an individual’s commitment to financial obligations. The number of open accounts, total debt level and repayment history are a few of the factors that move the credit score needle.

There are a variety of credit score models out there, but the one used by most financial institutions is the Fair Isaac Corporation, better known as the FICO score. This number range presents grade levels to show a borrower their current credit report status, which plays a major role on a mortgage rate. A FICO score of 800 or above is outstanding, while a number under 580 needs some improvement.

FICO Score

Excellent: 800-850

Very Good: 740-799

Good: 670-739

Fair: 580-669

Poor: 300-579

Want to learn how to improve your credit score? Read our 8 tips here.

Down Payment

How much is a borrower willing to put down on a house? In general, the more money that’s paid up front, the lower the interest rate; lenders see this as a lower risk situation because the individual has more of a stake in the property. If a borrower can pay 20 percent or more, comfortably, it’s likely a lender will offer a lower interest rate. However, if one is unable to make a down payment of 20 percent, they’ll have to get mortgage insurance, protecting the lender in the event a borrower can no longer make payments.

Loan Term

A loan term is the projected time it takes to repay the mortgage of a home. The duration depends on the type of mortgage and interest rate. A short-term loan means lower costs and a lower interest rate; however, monthly payments are higher. There’s a lot of factors that will determine the interest rate and length of the loan, such as whether the borrower applies for a fixed or adjustable rate mortgage.

Want to learn about other factors involved in calculating a mortgage interest rate? Try out this helpful tool:

*Not all borrowers will qualify. Contact us for more information on fees and terms. Not intended as legal, financial, or investment advice. Contact your financial representative for more information.

Kagan, Julia. “Credit Score.” Investopedia, April 2020.