Mortgage rate is the interest rate charged on your mortgage, and it partly determines how much you’ll be paying each month for your home purchase. There are many factors affecting mortgage rates, including:
- Your credit score
As with any type of loan, lenders will use your credit score to determine your creditworthiness. Your credit score is calculated based on your credit report, which contains information on your payment history, past and current loans, credit card transactions, and other financial activities.
As credit scores measure borrowers’ reliability in paying off their loans, homebuyers with higher credit scores are often granted lower mortgage interest rates compared to those with lower credit scores.
In New Jersey, you can qualify for an FHA (Federal Housing Administration) mortgage loan with a minimum credit score of 620. Meanwhile, conventional loans – mortgage loans secured through a private lender – typically require a credit score of 720 or higher.
- The home’s location
Mortgage rates can vary slightly between states since they are tied to the economic growth of the area. Economic growth indicators, such as gross state product (GSP) and employment rate, can influence mortgage rates because they suggest higher wages and more consumers looking to purchase homes.
If you’re moving to a state like New Jersey, take note that great opportunities and quality of life can come at a cost. New Jersey’s GSP in 2019 reached $564.0bm, ranking 31st out of all U.S. states. Between 2013 to 2018, its employment growth rate was 1.6%, ranking 19th nationally.
According to Freddie Mac, the average 30-year fixed-rate mortgage (FRM) throughout the country is 5.51%, while the average 15-year FRM is 4.67% (data as of July 14, 2022). In New Jersey, the average interest rate is 5.625% for a 30-year fixed-rate mortgage (FRM) and 4.875% for a 15-year FRM (data from U.S. Bank, as of July 15, 2022). While the difference is only a matter of several basis points, it can result in substantially higher monthly payments depending on the home price.
- Your loan term and down payment
The most common advice you’ll receive about mortgage loans is to shop around with multiple lenders. Different lenders offer various loan packages, which can equate to lower or higher mortgage rates.
Two things about your loan will determine your mortgage rate: your loan term and your down payment. Generally, the faster you can pay off the loan – through a shorter loan term or a larger down payment – the less risk there is for the lender, which can mean a lower mortgage interest rate.
- External economic conditions
Understanding how economic trends affect mortgage rates can help you be more strategic with your mortgage application, especially since substantial changes to mortgage rates often happen on a national level.
Take note of the condition of the larger bond market, such as the yield of the 10-year U.S. Treasury Bond. This sets the overall competitiveness of investment products, including mortgages.
You should also keep tabs on issues such as the current inflation surge in the United States, particularly the Federal Reserve’s monetary policy in response to it. Since it influences lending interest rates, it will also affect your mortgage rate.
Planning to buy a home in one of New Jersey’s gorgeous communities? Take that first step by contacting our team at Pagnotta Homes! We will guide you through every step of the home buying process, including in acquiring a mortgage. Call us at 908.436.7947 or send us an email here.