Understanding Which Factors Determine Current Mortgage Rates

Whenever you’re shopping around to buy a house, and you’re planning to apply for a mortgage loan, you’ve probably noticed the difference in current mortgage rates from various lenders. These rates are calculated using many factors, some within your control while some are not. If you’re curious about how mortgage rates are determined, then you came to the right place. Here’s a quick guide that shows you how mortgage rates today are determined.

What Factors Affect Mortgage Rates?

There are actually many factors that influence how the rates are calculated. For instance, the movement of the 10-year Treasury bond yield is said to be the best indicator to determine whether mortgage rates will rise or fall. The only question is, why?

Though most mortgages are packed as 30-year products, they are usually paid off or refinanced in about ten years. This makes the 10-year bond a great key indicator to gauge the direction of interest rates. Some of the market factors that may influence mortgage rates include:

  • The Federal Reserve

  • The overall economy

  • Lender and investor appetite for MBS

Personal Factors Affecting Mortgage Rates

Those mentioned above are mostly market factors that are not within your control. The overall economy actually plays a huge role in influencing mortgage rates, which are then followed by more personal factors. Let’s focus on those factors for now:

Credit Score

As with any loan application, your credit score plays an important role in what your mortgage rate will become. It is basically one of the biggest indications of risk on your part. Lending and investing in mortgages is all about making sure you get an appropriate rate of return for the level of risk being taken to fund a loan.

Down Payment

How much down payment you put on a property you’re planning to buy can also take a hand in influencing your mortgage rate. The higher your down payment is, the less a lender has to give you to fund the transaction. You’re basically paying more initially, making you less of a risk as a borrower.


Yes, even how you plan to occupy the property can also affect your mortgage rate. If you’re planning to make it a primary home, your rates will be different compared to treating the property as a vacation home or an investment property. Making a house your primary residence will net you the lowest rate.

Loan-to-Value Ratio

The loan-to-value ratio measures the mortgage amount compared with the home's price or value. Suppose you make a $20,000 down payment on a $100,000 house. The mortgage will be $80,000. You're borrowing 80% of the home's value, so your loan-to-value ratio is at 80%. If you decide to put in a higher amount for your down payment, you’ll get a smaller loan-to-value ratio. If your loan-to-value ratio is greater than 80%, that’s actually considered quite high, which may result in a higher mortgage rate, especially if you have a low credit score.


Many homeowners and borrowers tend to just go along with whatever mortgage rates they feel are suitable for them without even researching how mortgage rates work. Even if you’re not that interested in the actual rates, it pays to know how it all works so you can make a more informed decision.

Frontline Financial lets you find the best mortgage deals, especially if you’re a veteran. We dedicate our service to those who have served our country by helping them find their dream home. If you’re planning to apply for a mortgage loan, go to Frontline Financial. Contact us today to get started!