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How Interest Rates Affect Your Mortgage

The interest rate on your mortgage can affect your monthly payment by thousands of dollars each month. That’s why it is so important to not only shop around with different lenders for the best rate, but to also put yourself in the best financial shape before applying for a mortgage loan. Here are a few tips on how you can get the best rate on your next mortgage loan. 

Bump up your Credit Score 

You only need a credit score of 640 to qualify for a mortgage loan. But with a score of 640, your interest rate may be around 5.5%. However, if your credit score is 760 or higher, you could be offered an interest rate as low as 3.43%. In general, the rule is: the higher your credit score, the lower your interest rate.

Stay Put

Employment and income stability can also have a huge impact on your interest rate. Mortgage lenders like when applicants have been at their job for at least the past two years. So if you recently accepted a new job offer, you’ll need to provide W2 statements for the last two years of previous employment.

Pay Down Debt

Another big factor lenders look at is your debt-to-income ratio (DTI). This ratio determines how much your total monthly payments are versus how much your monthly income is. If your debt is higher than your income, you may be considered higher risk, which will result in a higher interest rate. So before applying for a loan, pay down any existing credit card debt, car loans, medical bills, etc.

Down Payment 

Generally, you’ll need a minimum down payment of 3.5% of the purchase price in order to get a mortgage loan. However, the more you put down up front, the better your interest rate will be. For instance, a loan with only 5% down is more high risk than someone who can afford to put 20% down. Start by getting an idea of the type of home you want, what the current prices of those homes are and then start saving up your down payment.


It’s not just about saving up for the down payment, but it’s also about having enough back-up in the bank. Most lenders will look at how much money you have in savings. Ideally, you should have enough to cover your mortgage for a few months in case you happen to lose your job, get hurt on the job, or any other factor that may affect your ability to generate enough monthly income to pay your mortgage loan.

Shop Around

Once you have put yourself in great financial shape, shop around with different lenders for the best rates. Space Coast Credit Union usually offers lower rates than big banks.

Check out our mortgage calculators today and see how much you can save.
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