Pentagon Federal Credit Union
Login Accounts
Search
  • Routing # 256078446
  • Partners
  • Member Discounts
  • Wealth
  • Foundation
  • Branches & ATMs
  • About
  • Search
  • Checking & Savings
    • Checking
      • Free Checking
      • Access America Checking
      • All Checking Accounts
    • Savings
      • Premium Online Savings
      • Regular Savings
      • Money Market Savings
      • All Savings Accounts
    • Certificates
      • Money Market Certificate
      • Coverdell Education Certificate
      • All Certificates
    • IRAs
      • IRA Certificate
      • IRA Premier
      • IRA Savings Account
      • All IRAs
    • How Can We Help?
      • Contact Us
      • FAQs
      • Forms
      • Advice Center
    • Special
      • Save smarter with higher savings rates
  • Credit Cards
    • Our Cards
      • Credit Cards Overview
    • How Can We Help?
      • Contact Us
      • Disclosures
      • Resource Center
    • Special
      • Choose the perfect card - Learn More
  • Auto
    • Auto Loans
      • Purchase
      • Refinance
      • Car Buying Service
    • Protection
      • Vehicle Protection
      • GAP Insurance
      • Debt Protection
    • How Can We Help?
      • Contact Us
      • FAQs
      • Forms
      • Advice Center
    • Special
      • Find your next car - through PenFed Car Buying Service
  • Mortgage & Home Equity
    • Purchase
      • Buy a Home
      • VA Loan
      • FHA
      • Conventional Fixed
      • Jumbo Loan
      • Power Buyer
    • Refinance
      • Refinance your Home
      • VA Streamline
    • Home Equity
      • HELOC
    • Real Estate Services
      • Find An Agent
    • Tools & Resources
      • Knowledge Center
      • eBooks
      • New Homebuyer
      • Calculators
      • PenFed Title, LLC
      • Contact
    • Special
      • Increase your wins , Become power buyer certified
  • Loans
    • Personal Loans
      • Personal Loans
    • Student Loans
      • Student Loan Refinancing
      • In-School Student Loans
    • How Can We Help?
      • Contact Us
      • FAQs
      • Forms
      • Advice Center
    • Special
      • Personal Loans made easy online
  • Learn
    • Learning Hub
      • Learning Center
      • Mortgage Knowledge Center
      • Advice Center
      • Financial Assistance Center
      • Emergency Furlough Relief Assistance
      • Natural Disaster Relief Assistance
    • About PenFed
      • About
      • FAQs
      • Forms
    • Security & Fraud
      • Security Center
    • How Can We Help?
      • Careers
      • Contact Us
    • Special
      • Exclusive Member Offer - T mobile
  • Join Now
  • Log In
  • Accounts
  • Resources

Affinity Title

MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

MORTGAGE KNOWLEDGE CENTER

PenFed Mortgage with Confidence

image

CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

  1. Home
  2. Mortgage Knowledge Center
  3. How Do Mortgage Rates Work? What Makes Them Higher or Lower Day to Day

MORTGAGE

How Do Mortgage Rates Work? What Makes Them Higher or Lower Day to Day?

What you'll learn: How Do Mortgage Rates Work? What Causes Daily Rate Shifts?

EXPECTED READ TIME: 7 MINUTES

October 7, 2022

How Do Mortgage Rates Work? What Makes Them Higher or Lower Day to Day?

 

The topic of interest rate for mortgages can feel a little like shopping for airfare. You see a price, only to find the same flight costs twice as much the next day. Then, down by half the following week – after you’ve booked your ticket. The ups and downs can be confusing and frustrating, especially if you’re not familiar with the industry and its trends.

While sudden and dramatic fluctuations aren’t always typical in the mortgage world, it’s no secret that rates can change from day to day (and sometimes even hour to hour). As a savvy homebuyer, it’s smart for you to wonder how interest rates are calculated.

What drives mortgage ratees? How is a mortgage interest rate determined? How does inflation affect mortgage rates? Sit back and discover how mortgage interest works.

How do interest rates work?

Let’s start with the basics. Interest is what you pay to borrow money. The interest rate is an annual percentage of your loan principal (the amount you borrow) that determines how much you’ll pay for the loan itself, in addition to the principal.

With every loan payment, your funds are allocated to both principal and interest. Typically, your payments start with most of the money going toward interest. By the end of your loan, you’re mostly paying down the principal. You can see how the split between principal and interest evolves over time through an amortization schedule.

Mortgage loans come in fixed and adjustable rates. A fixed rate means your interest rate will remain the same for the life of the loan. An adjustable rate mortgage (ARM) has a fixed rate for a set introductory period and then will go up or down for the remainder of the loan. In both cases, rates are calculated for the borrower based on several factors.

Who sets mortgage rates? Three key influencers

No one person sets mortgage rates. So where do rates published online come from? And why is the rate you’re quoted different? Here are three main entities, and the factors within them, that influence home loan rates.

1.   The Federal Reserve, and the economy as a whole

Technically, the Federal Reserve does not set mortgage rates. But the Fed, which serves as our nation’s central bank, raises and lowers its federal funds rate in response to economic conditions such as signs of inflation or recession. Put simply, the Fed’s adjustments are an effort to strengthen the U.S. economy.

While the federal funds rate has a more direct impact on credit cards, checking accounts, and Certificates of Deposit (CDs), mortgage lenders still pay close attention to changes the Fed makes. Mortgage rates are the result of many economic conditions throughout our country and around the world, and rising and falling rates over time is normal.

Economic conditions that can affect mortgage rates include:

  • Inflation– How does inflation affect mortgage rates? Inflation is when prices across the economy slowly increase, decreasing the purchasing power of the dollar. It takes a toll on everything from your favorite foods at the grocery store to mortgage rates. During periods of inflation, rates also tend to rise.
  • Housing Market – It’s supply and demand: When the housing inventory exceeds the number of homebuyers, interest rates tend to go down. When housing is limited and everyone wants to buy, rates may go up.
  • Job Growth – Low unemployment levels and high wages, both indicators of strong economic growth, is typically accompanied by higher spending among consumers. A natural area of spending is in real estate, which creates demand that may drive rates up.

2.   Your lender

Though influenced by the Fed and overall economic conditions, mortgage lenders ultimately set their own rates. That’s why it can be a good idea to shop around for a mortgage and to include banks, credit unions, and online lenders in your search.

Some lenders post current mortgage interest rates and annual percentage rates (APRs) online. Think of these as base rates. The rate you receive could be higher or lower based on several additional factors (more on that below). But beware as the rate you see listed may not be the rate you can get based on your specific criteria including your credit history, amount borrowed, term or length of the loan and many other factors.

To set base rates, a lender considers economic conditions, plus:

  • Risk Appetite – Lending money comes with risk. Financial institutions weigh risks and set parameters for how much they’re willing to accept. Because changing mortgage rates directly affect a lender’s earnings and value, they set limits to avoid future harm to the business.
  • Demand – Lenders can reach capacity when demand is high and staff members are trying to keep up with loan processing. They may adjust rates up or down based on whether they’re trying to slow demand or attract new business.
  • Origination Costs – You may be familiar with origination fees as part of typical loan closing costs. They include a variety of services including underwriting, credit checks, home appraisal, and administrative work. Essentially, it’s how much it costs a lender to process a loan. To keep origination fees competitive, a lender may build in a buffer to the interest rate to cover costs and create margin for profit.

3.   You, the borrower

Finally, there are factors you can control. The final piece of the interest rate puzzle comes down to the specifics of the loan you’re seeking and your financial situation.

  • Down Payment Size – A mortgage down payment is the cash you pay up front toward a property. The remainder is financed into a home loan. A standard down payment for conventional loans is 20 percent of the agreed price, but it’s possible to pay as little as three percent down (just know it will require mortgage insurance). A higher down payment usually secures a lower rate.
  • Credit Score – Your credit score is a number based on the information in your credit history. The calculation takes into account factors such as how much debt you have, the type of debt, and your repayment history. The higher your score, the more responsible a lender perceives you to be at handling debt – and that often translates into a lower interest rate.
  • Debt-to-Income Ratio (DTI) – DTI helps lenders better understand your ability to afford a home based on how much of your income is already used for paying off debt. It’s calculated by dividing your debt payments by your pre-tax income. Often, the lower the DTI, the lower the interest rate.
  • Loan Size, Term, and Type – Mortgages come in many shapes and sizes. A 15-year fixed-rate conventional loan for $150,000 is very different from a 5/1 adjustable-rate FHA loan. Rates can increase or decrease with different loan amounts, term lengths, and types (whether they are conventional, jumbo, or government-backed). All these variables influence each other. Your lender can suggest an optimal approach for you.
  • Property Location and Type – Rates can vary based on geographic area and whether the property is a primary residence, an investment or rental property, or a piece of land. States have different laws that influence interest rates, and a lender may also take into consideration how many foreclosures are in the area. It can pay to research the area where you plan to buy before shopping around for a loan.
  • Mortgage Points – You may choose to buy down your rate through points. This means you’ll pay a one-time, upfront fee in exchange for a lower interest rate. It can take years for the initial expense to pay off, so make sure to run the numbers ahead of time to ensure it’s worth it. A higher interest rate doesn’t always mean you pay more in the end.

How is a home loan rate calculated?

By now, you’ve probably guessed: There’s no magic formula for how interest rates are calculated. It’s a combination of all the factors we’ve discussed – many in your control and others not so much. The best way to obtain an optimal rate is to pay attention to trends, but focus on those within your power, like credit score, debts, and income.

And when choosing a lender, think beyond the lowest interest rate. Also, think about the relationship you want to have with them. If you feel you’re treated as a number instead of a person, or don’t feel comfortable asking questions, there may be a better fit for you someplace else.

For more information about PenFed Mortgages:
 

PenFed Mortgage: 

800-970-7766

Get Started

SIMILAR ARTICLES

Basics of Self-Employed Mortgage Loans

Getting a mortgage when you're self-employed can be challenging. Read on to find out what documentation you'll need and how to be successful.
woman who is self-employed

What to Look for When Buying a House

Learn tips for buying a house and what to look for when buying a house. From roofs and foundations to windows and doors. Read on to learn what questions to ask.
couple looking at buying house

Top 10 Advantages of an FHA Loan

FHA loans have lots of amazing benefits. From easier credit, down payment, and gift fund rules to great interest. Read on to see the top 10.
smart home features

Everything You Need to Know About VA Loan Rates

Questions about VA loan rates? Let the experts at PenFed help. In this blog, you'll learn who sets VA rates and how VA loan rates compare.
calculator and mortgage rates
image

CONVENTIONAL LOANS

Rates starting at % (APR %)¹

 

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Home Buying Steps

  • Getting Started
  • Finding a Home
  • Getting a Mortgage
  • Home Ownership

Mortgage Topics

  • VA Loans
  • Conventional Loans
  • First Time Homebuyer
  • Home Equity
  • Homebuying 101
  • Checklists
  • Adjustable Rate Mortgages
  • PenFed Top 10
  • Refinance
  • Jumbo Loans
  • FHA
  • Videos

Mortgage Products

  • Mortgage Center
  • Refinancing
  • Home Equity

PenFed HELOC

Rates as Low as % APR* with flexible use of funds

Apply before becoming a member.

After your application, we’ll help you:

1. Discover you’re eligible to become a PenFed member

2. Open a Savings/Share Account and deposit at least $5

Disclosures

1Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

*Prime Rate is % as of . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes.

  • Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
  • Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

  • Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Draw Period. During your Draw Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

  • Mobile homes
  • Co-ops or time-shares
  • Properties that are currently listed on the market for sale
  • Commercial property or property used for commercial purposes, even if a residence is part of the property
  • Undeveloped property (land only)
  • Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

  • Additional limitations may apply

Home Equity Line of Credit:

  • This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
  • If only minimum payments are made during the draw period, the loan balance will not decrease.
  • In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
  • In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
  • Property type of Condo has a maximum CLTV of 80%.
  • The maximum CLTV available is dependent on credit qualification.
  • Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

  • For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

  • Locations
  • Careers
  • Foundation
  • Contact Us

This credit union is federally insured by the National Credit Union Administration. Rates are current as of December 2023 unless otherwise noted and are subject to change.

APY = Annual Percentage Yield
APR = Annual Percentage Rate


  • facebook
  • twitter
  • linkedin
  • youtube
  • instagram
Download the PenFed app on Apple Store Download the PenFed app on Google Play
Read More about Equal Housing
Routing #256078446

©2023 Pentagon Federal Credit Union

Privacy
Security
Disclosures
Fees
Rates
Forms
Site Map

We use cookies to provide you with better experiences and allow you to navigate our website. By clicking “I Accept”, you consent to our use of cookies in accordance with our Privacy, GDPR and Cookie Policies.If you are a California resident, please visit our Privacy Policy page for the Notice of Right to Opt-Out of Sharing.

×

IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website that is not a part of Pentagon Federal Credit Union.


The content you are about to view is produced by a third party unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Realty, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Realty, LLC, see the Affiliate Business Arrangement Disclosure.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party Website.


The content you are about to view is produced by a third party website that is unaffiliated to Pentagon Federal Credit Union. PenFed takes no responsibility for the content of the page.


IMPORTANT NOTICE

You are leaving PenFed.org and entering a third party site. PenFed Title, LLC is wholly owned by PenFed and this referral may provide PenFed a financial or other benefit.


For more information about the relationship between PenFed and PenFed Title, LLC, see the Affiliate Business Arrangement Disclosure.


CONTINUE OR CANCEL

Member Login

Please enter a valid username.

I need help logging in

Having Trouble?
Forgot Username
Forgot Password
Forgot Username and Password
Unlock Account


First time logging in?

Create an online account

Not yet a member?

Become a member and take advantage of products and exclusive offers!

Join Now

Get Started

×

LOGIN

JOIN
Dismiss
PenFed App
PenFed PenFed, Inc FREE - On Google Play