Monday, September 3, 2012

Factors That Influence Your Credit Score - cont.

Loan term

The yield curve changes sometimes, but generally, a 15-year fixed-rate loan is lower than a 30-year fixed-rate loan. You can even do a 10-year loan for a lower rate. Right now, a 15-year mortgage has an interest rate about one-half percent lower than a 30-year loan.

Loan size

If you need to borrow a large amount of money, greater than the conforming loan limits, you'll pay an interest rate of at least three-quarters of a percentage point higher for a jumbo loan. Small loans sport higher interest rates, too. Once the loan amount gets below $150,000, there's usually a small add-on to the interest rate. The add-on is larger when you get below $100,000 or $50,000 because lenders make very little money on loans of that size.

Loan to value

The loan-to-value ratio refers to the amount you owe compared to the appraised value of the home. If you owe $90,000 on a house that's worth $100,000, then your loan-to-value ratio, or LTV, is 90 percent. If you owe $70,000 on the same house, the LTV is 70 percent.
Mortgages with a loan-to-value ratio greater than 80 percent require mortgage insurance. Borrowers have the option of paying their mortgage insurance upfront or over the life of the loan, but they can also opt for "lender-paid" mortgage insurance, which covers the cost of the mortgage insurance with a higher interest rate.

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