If you're shopping for a new mortgage, one of the first things you'll consider is the interest rates offered. However, figuring out if the interest rates are being provided competitively can take time and effort.

Determining if a mortgage rate is "good" is not just comparing the rates a potential homeowner offers to the current average speeds on the market. A homeowner must also compare the rates provided to other banks and lenders.

Factors That Affect National Mortgage Rates

To determine the average home loan interest rate, it's essential to understand how these interest rates are determined.

Government Bond Rates

One of the most common ways to determine what mortgage rates a bank can offer is by analyzing the current rates offered by investments considered safer than real estate loans. Typically, these investments are secure government bonds with virtually no risk of default. Banks use the interest rates on these bonds as a benchmark to set mortgage rates. Since mortgages are considered slightly higher risk than government bonds, most banks will set the minimum interest rate for a mortgage a point or two higher than the government bond rate.

The government sets the rate for its bonds. This means that many people and banks interested in mortgage rates pay close attention to the government bond rate. Lower rates encourage banks to offer lower rates, encouraging more people to take out mortgages and other loans. The government uses this interest rate to exert some control over the economy.

However, mortgage rates have already gone up this year and will likely continue to rise throughout the year. For an individual looking to take out a new mortgage, however, the government bond can be an excellent way to predict what will happen with mortgage rates. The government seems p for an individual looking to take out a new mortgage, which used to slowly ratchet the bond rate through the end of 2024 and into 2025 to control inflation.

In fact, many mortgage lenders in Detroit, Michigan, are telling their clients to lock in interest rates now, as they fully expect interest rates to continue to climb.

Minimum Rates

Be aware that, by US law, mortgage interest rates cannot be permanently set lower than 2%. While it may be possible to find introductory rates on adjustable-rate mortgages set lower than this level, 2% is typically considered the floor for mortgage rates.

Factors That Affect Individual Mortgage Rates

While understanding the average national interest rate for a mortgage can help determine if you're getting a good deal, it's not the only factor that can determine a mortgage rate for an individual. Several factors can determine an individual's mortgage interest rate.

Credit score - A person's credit score is usually one of the most significant factors in determining the interest rate that he or she will get on a mortgage. While it's a good idea for potential homeowners to work to get their credit score as high as possible before applying for a mortgage, it's also important to realize that a perfect credit score is optional to get a good deal on a mortgage.

Having a few mistakes in your credit history should not prevent you from finding a mortgage at a great rate. While higher credit scores typically get a person a lower interest rate, Direct Financial, a leading Detroit credit union, will work with people with less-than-perfect credit daily. In many cases, their representatives have been able to suggest ways to improve a homeowner's score so that they can qualify for a better rate.

Shorter loan term - Reducing the loan term from 30 to 15 years seems less risky to a bank. Shorter loan terms mean that a bank's capital is tied up in a property for a shorter time. Because of this, many banks incentivize homeowners to choose a shorter loan term by offering them a lower interest rate. While the monthly payment may be slightly higher due to the shorter loan term, selecting this type of mortgage also means that a person can pay off their loan in half the time.

These personalized mortgages are perfect for people who like to control their money. Direct Financial offers its clients a variety of payment terms. Depending on your financial circumstances, getting a loan term as short as five years or as long as fifty years may be possible.

Paying down points - Some loans offer the bank a lump sum payment to "buy down" the interest rate. That means that no additional funds will come out of your pocket for the loan. Often, the cost to do this can be wrapped up in the closing fees, which can, in turn, be added to the total cost of the mortgage.