Home Mortgage Rates

Understanding Home Mortgage Rates

Buying a home can be a thrilling experience, especially if this is your first time. Unless you’re able to pay off your home using cash, you’re going to have to obtain a mortgage loan in order to buy the house. Mortgage loans can be tricky business, and if you don’t know what to expect, you could end up confused and in debt. It’s important that you choose a lender that will go over everything in the loan contract from the penalties involved to the home mortgage rates that you’ll have to pay. Leaving any gray areas can result in you defaulting on a loan that ends in foreclosure.

Types of Mortgage Loans

Figuring out home mortgage rates comes down to the type of loan that you apply for. Different lenders also charge different home mortgage rates, which can vary greatly. When you go to a lender, try to ask as many questions as possible about your available mortgage loan options. There are various loan programs, so you will need to convey certain information to determine which you qualify for. Some of the loan types include:

  • sub-prime loans
  • fixed-rate mortgages
  • adjustable rate mortgages
  • 30-year mortgages
  • 15-year mortgages
  • convertible mortgages
  • convertible mortgages

Although less common, you can sometimes find a company that offers 40-year and 50-year mortgages. The rates associated with the different loan types are determined by economical factors and the choice of the lender. The type of mortgage loan you obtain will be determined by whether you have a fixed rate or adjustable rate agreement and the term. For instance, a 30-year mortgage would likely have a lower interest rate than a 15-year mortgage loan.

Choosing Between Adjustable Rate and Fixed Rate Mortgages

A lot of people are drawn into adjustable home mortgage rates because mortgage lenders advertise low initial rates. It’s important to read the fine print in this case because the rate could skyrocket after the initial period. Then with an adjustable rate mortgage, you are dealing with home mortgage rates that change every so often. So one month, your monthly payment may be $850 and the next, it could be $925.

With fixed rate mortgages, the rates are usually higher than initial adjustable rate mortgages. The attractive thing about fixed rate mortgages is that they are predictable. You won’t have to worry about the rate changing every now and then. You can get a 15-year fixed rate mortgage or a 30-year fixed rate mortgage. The same goes for adjustable rate mortgages.

Factors that Effect Home Mortgage Rates

There are various economical and personal factors that can affect the home mortgage rate that you receive. When you go to apply for a mortgage loan, you will be asked to provide various personal and financial details to the lender. What you provide will determine how much your interest will be and how much you’re able to able to take out in a loan. You may find that you’re not qualified for the size loan that you want and have to settle for less. Some people take out two mortgage loans in order to cover the cost of the primary mortgage. Here are the details that lenders look at when going over your application:

  • Assets you own (real estate, cash, businesses, bonds, stocks, etc.)
  • Your gross income (total household income before taxes)
  • What liabilities you have (bills and other financial obligations)
  • Lines of credit you have (the max limit you’re able to borrow from a lender with certain conditions)
  • Your net worth (the total value of your assets combined, minus your liabilities)
  • Lender’s prime rate (the rate given to credit-worthy borrowers)

Choosing a Lender Based

The annual percentage rate (APR) of a lender will determine how much you have to pay monthly for your mortgage. It’s important that you discuss the APR of the lender and whether the rate offered is an initial rate or for the full term of the loan. The annual percentage rate should be a primary factor that helps you decide whether or not you want to borrow from a lender. If the APR is too high for you to afford, you should either apply for a different loan program or find another lender. When comparing APRs of two or more lenders, make sure that it is for the same type of loan (i.e. 30-year or 15-year mortgage).

Other factors you should consider is whether there are any upfront fees, hidden fees and penalties, such as early repayment. Make sure to go over all of the home mortgage rates that you will have to pay over the life of your loan.