Why is my mortgage credit rate different from someone else’s rate? Why can my credit rate change from year to year?
They are good questions. There are a handful of factors that influence the qualification you can receive when you apply for a loan or a mortgage transfer; others, do not depend on you and have a great weight. Let’s see.
I recently met the case of two twin brothers. Juan lives in Bogotá and Marciano in Cali. In inheriting money, they made the decision to invest it well. Juan works as a lawyer. Marciano is making a career as an artist. The two made the mortgage loan application in the same week in different banks. Juan’s rate was lower than Marciano’s. Why?
I reviewed both applications and was able to discover several reasons why Marciano received a higher rate. I explain them to you:
Factors that influence the rate of your mortgage loan
The value or amount of the credit
The brothers had requested exactly what they needed to complete the value of the Apartments that each would buy. Juan had chosen an apartment of greater value, therefore, he requested a loan of greater value.
At higher value, lower rate. Why?
The value of money is closely related to the loan amount. The higher the value, the greater the risk, but also a better business for the bank. The rate expresses that reality. But the time factor is never lacking in the equation. In fact, the rate is the combination of the value of the loan in the period that the credit lasts.
Money has a cost over time. It is not the same if you lend someone money to get paid in a year or five years. The cost of money is directly related to time.
Juan and Marciano asked for the 15-year loan.
Your credit history
This factor may influence the assessment that the entity makes of your request. If you were ever reported for breaching a payment, even if you have already resolved the matter, it will appear in your financial history. The bank will give you points according to your policies. And it will be grounds for rejection if you appear in default at any risk center
Your income level
The twins had different incomes. Surely, this factor influenced the rating they received from each financial institution that evaluated their loan application. Juan could pay two credits if he wanted to; instead, Marciano would have to take care of his expenses to meet the quota, that is, the bank would do well to presume that he represents a greater risk (at least for a couple of years, as his career is on the rise). Each bank has its own rating tables.
Economic moment of the country
Business cycles move rates up or down. That will affect the rate of your mortgage loan whether you are applying for a loan to buy a home for the first time or a mortgage transfer. The Bank of the Republic evaluates each factor that moves the economy (production indicators, dollar value, exports, imports, costs, household consumption, indebtedness, etc.) and manages interest rates to control the economy. While financial institutions are free to set their interest rates, they should listen to the indications of the Daisy Bank.
Cost of each bank
Finally, the rate of your credit will depend on the bank or financial entity you choose.
All financial institutions have different administrative costs, different policies and different business strategies. These components weigh on the value of money and you will see them expressed in the TCEA, the Annual Effective Cost Rate. This is the real value that the bank will use to establish the interest you will pay for your loan.
The case of Juan and Marciano ended with a good result. After evaluating the two options, they were resolved by Juan’s. The difference was half a point. And half a point in time and for the value they were requesting, it’s enough money.