When someone is applying for a home loan, there are numerous factors that are going to impact someone’s monthly mortgage payment. Some of the factors that will play a role include the interest rate on the mortgage, the size of the down payment, the cost of homeowner’s insurance, real estate taxes, and the presence of Private Mortgage Insurance (PMI, if required).
While some people might think that their mortgage rate is going to be locked in for the life of the loan, this isn’t always the case. The interest rate on someone’s mortgage can fluctuate, causing the monthly payment to change as well.
This can be surprising and frustrating for people, particularly those who are on a tight budget. It is important to know about the factors that may cause the interest rate on a mortgage to fluctuate.
What Causes Changes in the Interest Rate?
There are numerous factors that might cause the interest rate to change. While it is good when the interest rate goes down, it can also go up as well. The first reason why someone’s interest rate might be changing is that they have an adjustable-rate mortgage.
There is another type of mortgage, called a fixed-rate mortgage, where the interest rate is locked in. This is not the case with an adjustable-rate mortgage (often called an ARM), where the interest rate can change.
Some of the reasons why the interest rate might change include:
- Changes in someone’s personal financial information that might impact the rate the bank changes on the loan
- Factors that dictate the health of the United States economy
- Changes in government regulations regarding loans, interest rates, and the US economy
It is not unusual for the interest rate on home loans to rise and fall with the stock market. The stock market is largely seen as a barometer for the health of the US economy.
Changing Interest Rates on a Mortgage for Bad Credit
These factors can even play a role for those who are looking for a mortgage for bad credit. Those who are looking for a mortgage for bad credit can still get a home loan; however, if the economy is not doing well, this might make it hard for these individuals to get a home loan at all. This can be incredibly frustrating for some people who want to own property.
Fortunately, there are ways to improve someone’s chances of getting a home loan. First, it is always a good idea to take steps to raise the credit score.
This can be done by paying bills on time and trying to remove some existing debt. This will make someone a better candidate for a loan with a lower interest rate, making a house more affordable.
Locking In an Interest Rate
Because interest rates are going to fluctuate from time to time, it is always a good idea to try to lock in an interest rate when the rates are low. This will prevent the interest on the mortgage from going up in the future. Once the rate is locked in, it cannot be changed for a set amount of time.