The interest rates that you see advertised on the internet are referred to as the "Best Execution" rates. These rates are assuming the very best scenario in terms of the borrower's credit history.

One of the most important determinants in securing a low interest rate is your FICO score. There are three major credit bureaus - Experian, TransUnion and Equifax - that each record a FICO score for you. Each score is based on the information that particular credit bureau secures about your financial activity. The FICO score helps lenders determine your ability to pay off a loan, so the better your FICO score, the better your mortgage rate.

Take a look at three different circumstances for a $300,000 loan - as you will see, the better the credit score, the lower the interest rate:

Sample 1: 5 percent down/5 percent equity (95 percent loan-to-value ratio) financing with a conventional mortgage on a primary residence with a 740 FICO score
Mortgage rate: 3.625 percent, with no points
Total interest paid on a term of 360 months: $182,909

Sample 2: 5 percent down/5 percent equity (95 percent loan-to-value ratio) financing with a conventional mortgage on a primary residence with a 700 FICO score
Mortgage rate: 3.875 percent
Total interest paid over 360 months: $197,463

Sample 3: 5 percent down/5 percent equity (95 percent loan-to-value ratio) financing with a conventional mortgage on a primary residence with a 680 FICO score
Mortgage rate: 4.125 percent
Total interest paid over 360 months: $212,251

In general, for every 40-point difference in your FICO score when purchasing a home or refinancing a home loan, expect the interest rate to rise about 0.25 percent based on your FICO score alone.

The score becomes a critical factor when lenders are determining your default risk based on your credit score. Credit, debt, income and assets are reviewed to determine the pros and cons of providing a home loan for the borrower. The more risk the lender takes on offering the loan, the higher the interest rate on the mortgage. However, the more risk you absorb as a borrower, the better the terms are for you in terms of interest rate.

If you have any questions about your FICO score, contact us at (858) 605-0952. Apply online today for a home refinance loan to save on your monthly mortgage payments. Rates are at record lows!