Interest Rates Vary Based on Individual Credit Scores
When home buyers are looking around for the best interest rates for home loans, they may wonder why they aren’t quoted the same rates they see advertised online or by lenders. Lenders usually advertise the best interest rates available only to their borrowers with the highest credit scores.
Credit scores can have a big impact on the rates borrowers are quoted on home loans. Forbes.com paints the following scenario in a recent article: Two neighbors are both applying for a $300,000, 30-year fixed-rate loan. The only difference is one has a credit score of 750 and the other has a credit score of 620. In that scenario, the borrower with the 750 credit score may be able to get the 3.75% advertised rate with a $1,390 monthly payment. On the other hand, the borrower with the 620 credit score may be quoted a 4.50% interest rate with a $1,520 monthly payment.
Lenders use risk-based pricing to determine the interest rates offered to borrowers. Credit is weighted heavily. Lenders will offer the same exact loan to a person with a higher score at a lower interest rate because they view them as lower risk. Source: Forbes.com
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