One’s credit rating does in fact have a large bearing on the mortgage interest rate set for a mortgage loan. One of the first things that any bank or credit union will ask for is a person’s credit score. A person who has a very poor credit score may be denied a mortgage loan outright. In other instances, a bank may grant the loan but attach a high interest rate to the mortgage.
The average mortgage rate for a good credit mortgage loan is about 4%. A four percent APR rate means that one will need to pay an additional $4,000 for every $100,000 that he or she borrows. On the other hand, a person with bad credit should expect an APR of anywhere from ten to fifteen percent. This means that one will end up paying an additional $10,000 to $15,000 for every $100,000 that he or she borrows.
When one considers the fact that the APR rate for a bad credit mortgage is more than double the APR rate for a mortgage loan given to a person with good credit, it is obvious that a wise person should work to improve his or her credit before applying for a mortgage loan. However, one should also consider that there are various factors that determine how high one’s APR rate will be. Interest rates vary from state to state and even city to city, so the location where one lives will have a bearing on how high or low the APR will be. Some lenders offer lower interest rates on mortgage loans than others, so it is often a good idea to shop around a bit and see which lender offers the best deal.
Two other factors that determine how high or low the APR will be is the type of loan one takes out and the size of the down payment. Even a person with poor credit can get a reduced interest rate if he or she can put down a sizable down payment. The faster one can pay off the loan, the lower the interest rate will be. The average interest rate on a 15 year mortgage loan is about 3.20% while the interest rate on a 30 year mortgage loan is currently 3.80%. This means that a person who takes out a 30 year mortgage loan will have to pay .60% more interest than a person who takes out a 15 year mortgage loan. This comes out to about $600 dollars more for every $100,00 that is borrowed.
A person taking out a mortgage will naturally want to get the lowest possible APR rate. While there are several factors that will determine how high or low one’s interest rate will be, a person’s credit score is a major factor that lenders will take into consideration. A wise home buyer will want to do everything possible to improve his or her credit rating before taking out a mortgage loan, as this can help one to save a considerable amount of money.
For further info about mortgage interest rates and credit scores, visit this article: Credit Rating And The Mortgage Difference