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What You Need to Know About Mortgage Interest Rates

What You Need to Know About Mortgage Interest RatesIf you are planning to buy a home or are already involved in the buying process, you’re probably aware of mortgage interest rates, how they change, and how they can influence your purchase.

Mortgage interest is the amount money you as a lendee has to pay to receive a home loan, other words, it is a cost of borrowing the money from a lender. As a rule, mortgage rate is expressed as a percentage added to your original loan. Within a life of a mortgage, the interest rate may vary depending on the mortgage type.

Since mortgage loan repayment can span decades, even a small change in your mortgage rate can greatly influence the size of your monthly payment.

When it comes to choosing a mortgage, the interest rate should be the main indicator to pay attention to. The interest rate dictates the amount of payment you have to pay each month.

What to consider before applying for a mortgage

What to think about before signing a mortgage

Before signing a mortgage, weigh all pros and cons. Take into account the fact that along with principal payment you will have to pay the interest rate. Thus, if you calculate your possible monthly payments by dividing the principal loan by number of months, you will not achieve an accurate figure.

Monthly loan payments are comprised of more than just principal and mortgage interest; they can also include insurance, fees and taxes. All of these factors should be taken into consideration when applying for a mortgage.

A mortgage should be an expense that you can afford to pay monthly without stretching your finances too thinly.

Also, remember that there are closing costs associated with signing a mortgage, which are often an overlooked expense.

Whichever way you look at it, a mortgage, along with mortgage interest, is a new expense that must be well considered and planned for.

What factors can have an impact your mortgage loan interest rate

If you are considering two loans that have all the same terms but with slightly different interest rates, you may very well lean toward the loan with the lower interest rate because you will pay less money over time.

But you may find that some borrowers are offered lower rates than other borrowers, and this can be the case for many reasons.

There is no way to guarantee that you get a low interest rate, but here are some of the main factors that can affect the interest rate mortgage lenders may offer you:

Credit Score

That seemingly random number that your parents encouraged you to build and protect can be quite important in the process for getting a mortgage, let alone a good interest rate.

What factors can affect your mortgage loan interest rateA credit score can be a way for lenders to assess the risk related to a potential borrower. Because a history of timely debt repayment can increase a credit score and late payments can lower a credit score, often, those with higher credit scores are considered safer borrowers. So, high-scoring borrowers may be offered a mortgage with a lower interest rate.

It can be a good idea to discover what your credit score is before you begin the home buying process. With this knowledge, you can be better informed about the types of mortgages you may be qualified for. Moreover, you can begin improving your credit score if needed.

Lenders

When shopping for goods, one of the most common pieces of advice is to shop around instead settling on the first offer you get, and that holds true for mortgages as well.

Different lenders have different underwriting standards that they adhere to when determining what kind of mortgages they can offer a potential borrower. Some lenders are strict while some are more lenient. This is why it is a good idea to get quotes from many different lenders.

Just because one lender offers you a mortgage with a certain interest rate does not mean that the next lender will offer you the same one.

All about timing

You’ve probably heard in the news about interest rates either going up or going down, and that’s because economic forces often control interest rates to some extent.

The video below can help begin to explain why national interest rates rise and fall.

Sometimes the interest rates that are offered are beyond the control of any individual home buyer. This is why timing should be considered. By nature, interest rates increase and decrease, so it could be beneficial to strike while the iron is hot and sign a mortgage when rates are low. But you should only do so if you are prepared, financially and otherwise, to buy a home and pay your mortgage on time.

There are many types of loans available to home buyers including fixed rate mortgages, adjustable rate mortgages, balloon mortgages, interest only mortgages, FHA loans, and VA loans, just to name a handful of them.

Each mortgage offers different benefits and drawbacks that are unique to themselves. One of the benefits or drawbacks of mortgages can be higher or lower interest rates.

For example, an adjustable rate mortgage may potentially have a introductory interest rate than a fixed rate mortgage however, the adjustable interest rate can grow up with time.

When it comes to choosing a type of loan, the interest rate shouldn’t be your only consideration as choosing a mortgage that isn’t ideal for your financial situation can have negative financial consequences.

For instance,a lender may propose you a balloon mortgage with a low introductory interest rate, but later your interest rate and monthly payments would climb. If you are unprepared for that, it could hurt you.

Before you begin thinking about interest rates, research all possible types of home loans and determine which one might best suit your needs.

Mortgage interest takeaway

If you are signing for a home loan, there is no way to get around paying your mortgage interest. But you can prepare yourself for the process by being informed and taking steps to get the lowest interest rate possible.