Wednesday, May 5, 2021

How is My Mortgage Rate Calculated?

 Have you been thinking about obtaining a mortgage at Lake of the Ozarks? If so, you've likely done your homework on mortgages and what's important when obtaining one. One of the most important things for many homeowners is their interest rate. But how are they determined? Well, this week's blog, I am going to inform you of the factors that are considered when it comes to mortgage rates. Continue reading to learn more!

Interest Rate Factors That You Control

There are several factors when mortgage rates are calculated that you as the borrower can control. Those factors are:

Credit Score

To put it simply, the higher your credit score, the more competitive your rate will be. Typically, borrower with scores at 740 or higher receive the prime rates. Tapering off as your score lessens. Certain loan products, such as fixed rate mortgages are only available to borrowers with scores above 620.

Loan-to-Value Ratio

Your loan-to-value ratio is also a factor in your mortgage rate.  This ratio measures the mortgage amount to the price or value of the home. For example, a $100,000 home that you plan to put $20,000 down on would have an LTV of 80%. If your LTV is above 80%, the lender is taking additional risk lending on the property and as such may increase the mortgage rate, especially if you have a subpar credit score. Loans with an LTV above 80% could also require private mortgage insurance as well. 

Type of Loan

The type of loan you're obtaining will also have a direct impact on the interest rates available. For instance, a purchase of a primary and second home may vary, as well as mortgages on manufactured homes, investment property, and condos. Cash-out refinances may also have varying rates as opposed to a purchase loan. 

Mortgage Rate Factors Out of Your Control

Just as there are factors that you can control that effect your mortgage rate, there are also factors beyond your ability to control.


Mortgages rates typically fall when the economy is slowing down, inflation is falling, and the unemployment rate is rising. This helps to stimulate the mortgage industry by offering great rate incentives. Rates tend to rise when the economy is trending for fast growth, higher inflation, and a low unemployment rate.


When inflation is on the rise, rates often trend  upwards to help mitigate the loss of the dollar losing value. Helping lenders continue to function regularly while still providing essential services to their community.

Job Growth

Job growth affects the mortgage industry, as it assists people during recessions to lower their payments and maintain good standing with their mortgage. As the employment rates begin to rise, so to do the mortgage rates.

Economical Indicators/Forecasts

Other factors that influence mortgage rates include retail sales, home sales, housing starts and development, corporate earnings, and stock prices. 

The Federal Reserve

While the Federal Reserve doesn't set mortgage rates, they do raise and cut short-term interest rates based on sweeping shifts in the economy. Mortgage rates rise and fall based on those same economic factors, so it's likely that they will follow a similar trend.

I hope that you've found this week's blog informative in helping to understand the factors that influence mortgage rates and are able to confidently shop for a competitive rate. If you own a home or are looking to buy a home at Lake of the Ozarks, interest rates are still very low. I would be happy to discuss your options for obtaining a mortgage at Lake of the Ozarks and help you close on a purchase or refinance a home here.

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Michael Lasson
Senior Loan Officer
NMLS #: 493712

4655 B Osage Beach Parkway
Osage Beach, MO 65065

**The postings on this site are my own and do not necessarily represent First State Bank of St Charles’s positions, strategies, or opinions.

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