What is my Interest Rate?!?

anthony patton

A word about mortgage rates…

What is my interest rate… and how do you decide?

What is life without a little risk? But in reality risk determines rates...

Risk? Risk of what? Well the truth is the risk that you will not pay your mortgage back… I mean they are lending you a lot of money to buy this house… and what if you don’t pay it back? Oh you can think that the mortgage is secured with the house and they will get their money back but more often than not the lender does not win when they foreclose despite all the fake news about mortgage companies wanting to take people’s houses… they don’t they want their house back.. they want their money…so there are really two determining factors to risk… 1 is how much does the buyer… that would be you…. How much do you have invested into the property…? How much money did you put into the deal when you bought it… was it 0% or 3% or 10% or 20% or more… think about it this way… if you were the bank... and you loaned someone some money to buy a 300,000 house… how safe do you want to be… do you want to loan someone 300,000 to buy a 300000 house? Or would you feel better if you loaned them say 290,000 and the person brought their own 10,000 … would you feel better if you loaned someone 240,000 and they brought their own 60,000 to the deal? I hope you see the point… if you were the bank… and say you have three people wanting loans… and one person had no money into the deal… one person had 10,000 one person had 60,000 do you think your risk of foreclosing is the same for all 3 people… well no its not… so you offset risk with return…. The higher the risk the higher the rate of return… this is a concept we understand with our own savings…. do we put our savings in a savings account where we know it is safe then we will get a low rate of return… if we move to stocks we might lose it but we might get a higher return on our investment… if we move to drilling oil wells… super high risk we could drill and oil well and not hit oil… but also super high return IF we hit oil….

Besides down payment... the other factor that goes into rates is credit score… a credit score is between 300-850… the score is calculated by comparing the historical performance of thousands of profiles compared to your profile, how much credit you have… how long you have had credit and how well you pay your bills…the higher the credit score the lower the risk of foreclosure…. So you’re the bank… and you have 3 people… person A has a 620 score... person B has a 700 score and person C has an 800 score…. Who do you think is the best risk...?

Who do you think will pay you back and who do you think might not pay you back…. Ok… so you want to loan all three of them money but with the 620 guy you want a little more return on your investment maybe 5% but on the 800 score person.. you still have risk but not as much as the 620 guy so maybe his rate is 4.75%... so when you add the two factors…. Down payment and credit score…. You get a pretty good idea what your risk of foreclosure is… and if that guy is going to pay you back…. And then you set up a formula that calculates those factors and sets a rate for every conceivable scenario… and you tie that factor to the bond market where mortgage backed securities are traded on the open market… now as the stock market goes up and down and the bond market goes up and down the mortgage rates go up and down for any given situation…. …

What are they today… well it depends… what the bond market doing and what is your credit score and down payment?

Now there are ways we can manipulate your credit score to get you from 620 to 800… listen to our credit scores podcast….

I hope this helps… we are here for you all along the journey… if you want proof our reviews are online… or I can send you a list of happy customers…

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