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| What Determines My Interest Rate? |
| Rate is primarily determined by risk that the investor takes in “backing” your loan. (Please see, “How does a mortgage refinance work? for more info) One of the most significant determining factor is in the Loan to Value ratio. This will determine in many cases whether or not we will be able to use a conforming lender vs. non-conforming one. Perhaps the best way to explain the difference between the two is to tell a short story. Let’s say that there is a house that a bank has a note for that is in the amount of $100,000 and that is exactly what the house is worth. If the bank or investor had to foreclose on the house, they would be lucky to get $70,000 to $80,000 out of the auction. If you’re a great math wiz, you have probably already realized that is around 70% to 80% of the value of the home. Ever wondered why all the low rates that you see has the fine print at the bottom that specifies this lower risk level loan to value percentage?!? Basically, to get an idea of what risk you might have in this arena, simply add the debts you would like to pay and include your mortgage and see if the sum exceeds 70% to 80% of the projected value of my home. Typically conforming lenders prefer the lower LTV%. On occasion there are exceptions with the implementation of PMI or Principal Mortgage Insurance. However, more times than not, there is a non-conforming program that will be more beneficial. Non-conforming loans make up about 4/5 of the market and basically cover all that a conforming lacks. |
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