Mortgage Articles

The very first thing that your loan officer checks when you apply for a mortgage or any kind of credit is your credit score. You are rated in terms of the score which in most cases influences the amount you borrow. Understanding the credit score in a better way enhances your chances to develop a higher score and thus benefit from loans at better terms and conditions.

A credit score is that numerical quantity which makes all the difference in getting your loan approved by a mortgage lender or a car loan provider or even getting turned down for any kind of credit. Creditors use this score in finding out the risk in offering you the loan and your ability in paying it off. The better your score, the lesser is the risk involved

How the scores influence interest rates
Generally, credit scores range from 300 to 900 and an average score of 650 is rated as suitable for getting mortgages at reasonable rates and terms. It's your score that affects the interest rates on your home loan, insurance premiums and even the chances of getting a suitable employment.

The following table demonstrates how your score affects the interest rates and hence monthly payments required to pay off a 30 year fixed rate mortgage worth $210,000.

Let us consider Mr. X having a score of 729 and qualifying for the 30 year fixed rate loan of $210,000 at 6.5%. He pays a monthly installment of $1,360. Another borrower, Mr. Y having a score of 685 gets the same loan amount from the same lender. But Mr. Y makes a higher monthly payment of $1,390 at a comparatively higher rate of 6.7%. The variation in the rates and payments is due to the difference in the scores of Mr. X and Mr. Y.