How AZ Mortgage Rates Are Determined

Lowest Arizona Mortgage Rate

On this list of anyone looking to get a new Phoenix area mortgage (whether they are refinancing or buying), obtaining a the best Arizona mortgage interest rate is typically at the top – and it should be.  What is missing from this search for the best rate in many cases is an understanding of what the best rate is and how to get it.  Let’s look at how Arizona mortgage rates work and point out what you should be looking at when searching for a new mortgage.

***If you are not a big fan of reading the short answer on how to get the lowest mortgage rate – lock with The HOUSE Team on a FLOAT DOWN LOCKLearn more

How are Home Loan Rates Determined?

The first thing to understand with regard to who controls interest rates is that no ONE controls mortgage rates.  Mortgage rates are determined based on the value of mortgage backed securities (bonds) that are traded on the open market much like stocks.  So just like stocks the price of mortgage bonds fluctuates on a constant basis.  In fact, mortgage bond prices move not just daily but consistently throughout any given business day between 9am and 5pm Eastern Standard Time while the financial markets are alive.  Movement in bond prices DIRECTLY influences the mortgage rate that a mortgage lender can offer you.  In fact, mortgage bonds have a direct inverted relationship with mortgage interest rates.  If mortgage bonds go up mortgage rates go down and vice versa.  So yes, you absolutely want mortgage bonds to soar (at least for the sake of your AZ mortgage rate).

This describes how what we call “Base Mortgage Rates” are determined.   A Base Rate is where any mortgage lender starts when calculating someones final AZ mortgage rate.  Not everyone and every scenario receives the same mortgage rate (even if they lock at precisely the same time on the same day).  There are adjustments that must be made by every lender to the base rate depending on the risk layers associated with a particular loan application.  The most common factor that lenders adjust a mortgage rate for is someone’s credit score.  The lower the credit score, the higher the interest rate.

Why do Mortgage Lenders Adjust Rates Based on Credit Score?

Mortgage lending (and just about any other lending) is predicated upon risk.  If for example, there are 2 borrowers looking to take out a mortgage of $300,000 with Loan Company X, that lender is going to look at each borrower’s loan application and analyze them to figure out how much risk they are exposing themselves to by loaning each the $300,000.  If client #1 has a 620 credit score and client #2 has a 780 credit client #1 is a much larger risk based on the fact that her credit score states that she doesn’t manage her finances/bills very well.  Lenders use the credit scoring system to tell them how responsible an individual is with their money.   The lender in this case will give client #1 a higher interest rate to compensate for the added risk.  Are they doing this to punish client #1 for having a lower credit score?  Not at all.  If you were giving me money and you knew I was going to pay you back you might charge me a lower interest rate than if you thought there was a strong chance I was going to skip town and leave you high and dry.  If you thought I was going to skip town you may either choose to not lend me any money OR lend me money at a higher rate so that if I only made 10 of 12 payments to you, you were able to collect enough revenue (interest) on the loan for it to make sense for you to extend a loan to me.

Other Factors That Impact AZ Mortgage Rates

Below is a list of different criteria that can cause an interest rate to vary from the “base rate” described above:

Property Type (condo, 2-4 unit etc..)
Occupancy Type (Investment purchase/rental property vs. owner occupied)
Transaction Type (Cash Out Refi vs. purchase or rate/term refi)
Loan To Value/”LTV” (higher LTV’s can sometimes carry higher rate)
State (Rates are regional and some states have higher/lower mortgage rates)
Late Mortgage Payments in the past 12 months

So while bait and switch lenders post generic quotes either online or even present them directly to a client, MAKE SURE the quote you receive is relative to your specific scenario.  The question “what are today’s rates” is a loaded one – or at lease it should be.  Your AZ mortgage lender should ask a few probing question before answer the question “what are today’s rates” to make sure the rate you are being quoted is accurate given your circumstances.  Making sure you have an accurate and very aggressive Arizona mortgage rate quote is critical when you are trying to figure out what your home buying options are.

If you have any questions about what “today’s Arizona Mortgage Rates” please call or email me today.  My team and I would be happy to help.

By Jeremy House
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