Any person who is planning to apply to refinance his home mortgage desires to get the lowest possible rate to suit his budget. It also reduces the tenure of the mortgage while simultaneously it increases the savings. The mortgage rates fluctuate with changes in the financial markets and economic conditions of the country. With the ease of technology, mortgage rates can be obtained online also but there is no guarantee that it is the best mortgage rate.

There are various personal controllable and environmental uncontrollable factors that affect mortgage rates. They are –

• Current Housing Market Situation – If there is boom in the housing market then the mortgage rates will be high. But if people are finding it difficult to sell houses i.e. housing market is in a gloomy situation, then lenders are willing to accept lower rates of interest.

• Inflation – As mortgages are spread over a period of time (around 10 to 30 years) inflation also has an impact on the mortgage rates. Lenders calculate the profit they will make over the period of time considering the rise in inflation. Inflation not only increases the prices of goods and services, it also increases the rate of interest.

• Economy – The performance of economy, rate of unemployment cause fluctuations in interest rates. If there is rise in unemployment, it increases the risk of bad debts, bankruptcy and foreclosures. The Gross Domestic Product (GDP), Consumer Price Index, Job reports and other such information triggers changes in mortgage rates.

• Credit Scores – The credit score of a person influences the rate at which a mortgage loan is available to him. Lower the credit score, higher the interest rate; low credit score projects a higher risk of default. Late payments of credit card bills or any other mortgage loan creates a negative impact on credit score. The credit score is an indicator of the financial condition of the borrower.

• Type of Loan – The type of loan whether fixed or ARM is also a deciding factor for interest rate. The tenure of loan also changes the interest rates. Short term loans have higher interest rate than long term loans.

• Amount of Down Payment – Down payment is the amount a person is willing to pay outright initially. If a person is ready to make a higher down payment, he can avail lower interest rates.

• Type/Location of the House – If a person has his house on the outskirts of the city, he will get mortgage at a higher interest rate than a person who has his house in the city. The size of the house also matters in deciding the interest rate. The local and State Government policies for an area affect the interest rate prevailing in that area.

• Percentage of Mortgage still Owed – The more the current mortgage is owed, higher are the interest rates. The regularity of monthly payments for the existing loan causes an impact on the rate of interest. If the mortgage remaining is low, there are chances that the person can avail the lowest interest rate.

The interest rate is a complex outcome of all the above complicated factors and hence people who want to refinance should take steps to improve the factors that would cause negative impact on their mortgage rates.