A mortgage interest rate is just like an interest rate you have on an auto loan or credit card. The interest rate is the percentage the credit card company or bank charges you every month as long as you owe money on your balance. A mortgage interest rate works the same way and can play an important role in how much money you will spend over time.
A mortgage is the money you borrow when you buy a home. The interest rate is the money the lender will charge you for lending you the money. Your mortgage interest rate will be the determining factor on how much you will pay on your home over your loan time. Even a tiny increase in your interest rate can dramatically change your monthly payment. It is important to understand how your interest rate can change your home loan.
There are many different types of loans and many different factors to take into consideration when it comes to rates. Lenders will look at your credit score and if it is good, they know you will more than likely pay your payments on time. The higher your credit score, the less risk you are, so you will get a lower rate. The size of your down payment will also affect your interest rate, the more you put down, the lower the interest rate. Guidelines say that you can put down as little as 3.5% but the less you put down the more riskier you look to a lender. The amount of loan and closing cost can also change the interest rate. If your lender rolls in their closing cost into the loan, the loan amount will appear larger and could result in a higher mortgage interest rate. A shorter loan such as a 15-year loan and an adjustable-rate mortgage can also result in lower interest rates. Remember that an adjustable rate will change with the current market.
The Annual Percentage Rate (APR) is different from a mortgage interest rate because the broker fees, discount points, Private Mortgage Insurance (PMI) and closing costs are included. The APR is usually higher than your mortgage interest rate because it represents a truer picture of your borrowing costs.
Understanding a mortgage interest rate is a big step in the process but finding the right mortgage broker is very important. A local mortgage broker can help find the right loan option for you. Certain lenders can offer certain rates so finding an independent mortgage broker who has access to wholesale interest rates will be a plus.
