What Are the Factors That Impact Mortgage Rates?

by Shashank ShekharApril 18, 2013

Everyone wants that lowest advertised mortgage rate. They often get upset when they don’t. Not realizing that there are several factors that impact mortgage rates and a change with any of those factors can impact what rates they qualify for.


The other day I got a call from one of my clients who wasn’t happy that I quoted him 4.125%. He said that I gave his friend 3.625% and how come he couldn’t get the same rate. I had to explain to him all the things that were different with his loan compared to his friend’s.

I am listing those and other factors that could impact the rates/fees you are quoted. Some of these factors may not have an impact on government loans like FHA or VA loans, but would impact a conventional mortgage.

Credit Score

For conventional mortgages 740+ is considered an excellent score. Any score under 740 can result in higher cost or fees.

Loan to Value Ratio (LTV)

Higher LTVs mean higher rates. So if you are getting a loan with as much as 40% down payment, you should get better rates than someone who only has 10% down.

Loan Program

Fixed rate mortgages would typically have higher rates than an Adjustable Rate Mortgage (ARM).

Occupancy Type

A primary residence or second home would get you better rate than an investment property.

Property Type

A condominium with less than 25% down payment will have a higher rate than a single family residence.

Loan Amount

The conforming loan limit is $417,000. But in some high cost areas like San Jose, CA the loan limit is $625,500. But the rates are higher on loan amounts over $417,000.

Subordinate Financing

If you are getting a second mortgage along with the first, you may end up paying a higher rate on the first.

As always, consult with a reputed loan officer to understand all your options. You should work with a loan officer who simply does not quote you rates, but looks at your financial goals and recommends you a suitable loan program and rate.

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About The Author
Shashank Shekhar
Amazon.com Best-selling author, Shashank Shekhar (NMLS 8176) is a mortgage lender with Arcus Lending, offering loans for home purchase and refinance. Shashank has been featured as a mortgage expert on Yahoo! News, ABC, CBS, NBC and FOX. He has been named "Top 40 under 40" most influential mortgage professionals in the country.

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