Why Do Mortgage Rates Vary Per State?
Did you know that mortgage rates vary from state to state? Most people don't. While this isn't something that most people consider since it is unlikely that they are going to move to another state to buy a house it is something to think about. You really should be asking questions about why mortgage rates vary by state. The answer really isn't all that surprising if you think about it; mainly it involves how much government regulation there is.
The fact that mortgage rates vary from state to state confuses a lot of people, mostly because the prime interest rate is the same in all states. That often leads people to wonder why a Denver mortgage does not have the same rate as a Seattle mortgage. The main reason for this is that the laws regarding mortgages are different from state to state. That means that lenders often have to charge different rates in order to make sure that they can issue mortgages that are profitable under each states laws. Otherwise there would be no reason for them to offer mortgages.
The biggest factor in determining the interest rate in a state will be whether or not the state allows pre-payment penalties. Pre-payment penalties are often included in mortgages so that people
are not constantly jumping from one mortgage to another. If they aren't there it becomes very easy to refinance your mortgage at a better rate. This is great for the consumer but not so good for the lender who have done their planning based on the loan being held for the whole duration. There are some states that have laws against pre-payment penalties; it is these states that usually have the highest interest rates on mortgages.
The other big factor that affects mortgage rates from state to state is the law regarding foreclosure. Again this is determined at the state level and has a pretty big impact on rates. Basically the more likely that it is that the lender will be able to recover their losses if a mortgage goes unpaid the lower the interest rate will be. In general the states that offer the most protection for homeowners will also have the highest interest rates. The cost of the unpaid mortgages that can't be collected through foreclosure gets passed on to other borrowers.
It is important to keep in mind that it is not just the interest rate that varies by state. There are also a number of fees that are associated with a mortgage and these almost always vary as well, usually by more than the interest rate. In this case the reason is that these fees are usually capped by law and each state sets different limits. It is important to keep these fees in mind when you are comparing mortgage rates since they can really increase the cost of the mortgage.