When looking for a lender to borrow from, most potential home buyers will go to the lender that can provide the lowest mortgage interest rate. A low-interest rate equals a lower monthly payment, and the borrower saves money throughout the life of the loan. However, understanding how mortgage rates are calculated may help a borrower identify numerous factors, such as whether they have a high probability of getting accepted or why they were refused. Let’s look at some of the factors that influence mortgage rates.

What factors influence mortgage interest rates?

1. Credit Score

Lenders review the borrower’s credit score first to see how likely they are to repay their loan. Most of the time, low credit scores result in higher interest rates compared to those with higher credit scores. While many lenders check a borrower’s credit score, they still need to perform a thorough underwriting process, which is explained in the next section.

2. Economic Conditions

Mortgage interest rates are closely tied to economic conditions. When economic conditions improve, mortgage rates tend to fall. When the economy weakens, rates tend to go up. While many things can affect economic conditions, interest rates are closely tied to the Federal Funds Rate (FFR) and the 10-year treasury rate.

3. Down Payment

The amount of money that a borrower puts down on their house can also affect their interest rate. For example, a borrower who is able to provide a 20 percent down payment on a house will probably qualify for a low-interest rate -this is because the lender has less risk involved. On the other hand, someone who puts 5 percent down on a house will likely pay higher interest rates, because the lender has to charge a higher rate to cover the possibility that the borrower will not have enough money to pay off their loan. 

4. Loan Term

The length of the loan affects the interest rate as well. Longer loan terms mean that the borrower will be paying interest on the loan for a longer period of time. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments. Longer loan terms have higher interest rates but lower monthly payments. 

5. Other Debts

Borrowers with multiple debts may be considered a higher risk, and that additional risk is reflected in their mortgage interest rate. The more debt a borrower has, the higher their mortgage interest rate is likely to be.

The final rate that the borrower is approved for is the sum of the rates and fees associated with the lender and the loan program that the borrower closes on. The amount of each factor that affects the final rate and fees is going to vary from one loan to another.


In general, mortgage interest rates are determined by the market, and they are set through a variety of loan programs. Rates and fees of a lender are starting points that may change based on the specific loan program that the borrower is approved for. Different aspects of the loan, such as credit score and loan term also play an important role in determining the final interest rate and fees of a loan.

Cross Timbers Mortgage offers flexible yet reliable conventional loans to people in OK and FL. Our goal is to make borrowing money easy and quick, especially for those who need it the most. We also offer mortgage refinancing to help our borrowers get ahead of their loans. Book an appointment today to learn more about how we can help.