GFA Federal Credit Union

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  • Apr 08, 2024

Key Factors About Mortgage Interest Rates

The rising cost of homes deters both young and old aspiring homeowners from purchasing a property they can call their own. However, interest rates are the real culprit behind mortgage approval and the quest to homeownership. Read the following key factors about mortgage interest rates to learn about financing options, so you can own the home you’ve always dreamed of.

The Close Relationship of Credit Scores and Mortgage Interest Rates

A high credit score indicates a history of responsible financial behavior. As a result, lenders are more willing to offer you a lower interest rate.

Mortgage rates have “tiers” associated with credit scores. Those in the highest credit score tier receive the lowest rates, with incremental increases for lower tiers. For example, a borrower with an excellent score might secure a rate of 3 percent, while someone with a fair credit score might receive a rate closer to 4 percent.

For first-time homebuyers, the period before applying for a mortgage is critical for credit management. Paying bills on time, reducing existing debts, and checking for errors on your credit report are essential steps toward improving your score.

The Length of the Term and How It Affects Interest Rates

Mortgage interest rates are defined by the length of the loan. The borrower and lender will agree on the duration of the loan, which will then determine how much interest the borrower pays alongside the house payment.

Short-Term Mortgages

Short-term mortgages consist of 15 or fewer years of repayment to the lender. The lower interest rates translate to significant savings for borrowers. While the monthly payments are much higher, short-term mortgages are great options for homeowners who want to build equity and own their property quickly.

Long-Term Mortgages

On the other hand, 30-year mortgage loans typically have higher interest rates because lenders bear a greater risk over the extended period. From changes in the economy to the status of the financial institution, the higher interest rate acts as a safety net to ensure the success of the credit union.

However, higher interest rates and the longer repayment period comes with lower monthly balances. Many homeowners choose this option because it makes purchasing a home more accessible as well as offers more flexible funds for everyday financial obligations.

The Advantage of Signing Up for a Credit Union Mortgage

Credit union mortgage lenders are versatile because they understand that everyone’s financial needs differ. At GFA Federal Credit Union, we offer features like fixed-rate mortgages, adjustable-rate mortgages, and a program dedicated to first-time buyers.

Our goal is to circulate profits back into the community. One of the key factors why credit unions have reasonable mortgage interest rates is because we want our members to thrive! If buying a home is your goal, GFA Federal Credit Union is ready to assist.

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