Down payment/LTV ratio
Your down payment is of particular importance if you take out a conventional loan. Putting more money down means it will be easier to quickly repay your loan balance should you sell your property later. And since that makes you less risky in the eyes of lenders, they will usually offer you lower rates.
If you are refinancing, you will have to consider your loan-to-value (LTV) ratio, which represents how much of your property’s value you are borrowing. For instance: if you are borrowing $300,000 on a property worth $375,000, your LTV ratio would be 80%. As a general rule, the lower your LTV ratio, the lower your mortgage interest rate will be.
Occupancy
Mortgage lenders use the term occupancy for how you plan to use your home. The most favorable rates go to borrowers who plan to live in the home as a primary residence. Compared to second homes or homes they plan to rent out, homeowners usually protect their investment in their primary residence. Lenders therefore charge higher mortgage rates for vacation homes and investment properties. This covers them in case you fail to make mortgage payments in a financial emergency.
Loan term
Loan term refers to the number of years it takes you to repay your home loan. A shorter loan term builds equity more quickly—and enables you to repay your lender more quickly. These are factors that lead to a better rate on 15-year mortgages compared to 30-year mortgages.
