A Simple Guide to Mortgage Interest Rates - ryangrantteam

lender and clients

The interest rate is hard to navigate for most people who want to buy a home. It does not matter that you already have home buying experience. What exactly is an interest rate and why do they increase and decrease? What is the best way to receive the best rate and save money down the road?

Read below to learn everything you need to know about mortgage rate prior to your home loan application.

Why is your mortgage interest rate important?

Most lenders do not just give you money because they trust you and they are good guys. They are here to make money as well. Mortgage interest is the extra money you give your mortgage lender for lending you the cash you need to purchase a house.

Your home loan monthly payment is determined as a portion of your total mortgage amount. For instance, you obtain a thirty-year home loan with an interest rate of four percent. Throughout those three decades, you will pay back the forty-three thousand seven hundred thirty-nine dollars in interest. The home loan payments will come to approximately nine hundred fifty-five dollars every month. Your home loan payments would end up being high or low. This depends on the mortgage rate you receive.

Why do interest rates increase and decrease?

Interest rate could vary each day and depends on how the United States economy is doing. Reports on employment, consumer confidence, fluctuations in house sales, and other economic factors will influence interest rates.

How do you lock in a mortgage interest rate?

When you lock in an interest rate, the lender will give you your home loan at a certain rate. This occurs thirty days after being pre approved for the loan. This rate lock will keep you secure against the increasing and decreasing rates. This is very important information since even the smallest portion of a percent could take a toll on your home loan as time goes on. It also gives potential home buyers less stress because they know what they’re getting. 

Most people who buy a home will most likely worry about the right time to do the mortgage rate lock. They are paying close attention as to when to lock before the rates sink even lower.

However, loan officers do not know the future when it comes to interest rates. It is not possible to find out specifically how the economy will end up as time goes on. Don’t pay attention to the tiny highs and lows. You should pay more attention to where you are in the journey of getting your house.

Click here to learn what to expect when buying a home in the spring!

How do you get the right interest rate?

Mortgage rates are different depending on a homebuyer’s personal finances. These six key factors will affect your interest rate you can receive:

Your credit score: In the process of applying for a home loan, your loan officer would like to know that you will be able to pay them back as the years go by. One strategy they use to determine this is by looking at your score. Your credit score represents how well you have paid off your expenses. It also shows lenders how well you can pay off your loan. 

Down payment and loan amount: Your mortgage lender will believe that you are less risky and will most likely give you a good rate if you put down a large lump sum on the house. If you don’t have a lot of money to put towards your twenty percent down payment, you will most likely need to pay for private mortgage insurance. This will be an expense that you will need to pay each month and is meant to control the risk for the lender in case you are unable to pay your monthly loan payment. 

Home loan type: Your mortgage rate will be impacted by the kind of loan you decide to use. Most home buyers use a conventional mortgage. This is directed at buyers who have good assets, great credit and a steady paycheck. If you are not in good terms monetarily, you may need to apply for an FHA loan. This loan is from the government and will need a low down payment amount of three and a half percent. There is also the VA loan for retired or active military individuals. 

Mortgage loan term: A shorter-term loan usually has lower interest rates, lower overall costs, and larger monthly payments.

Type of mortgage interest rate: Interest rates depend on whether you get an adjustable-rate mortgage or a fixed-rate mortgage. An adjustable-rate mortgage is a loan that starts out at a predetermined interest rate. The rate adjusts after a specified initial period of three to ten years based on market indexes. A fixed-rate mortgage means the interest rate you pay remains fixed at the same level throughout the life of your loan.

Do you have a question about mortgage interest rates? Click here to contact the Ryan Grant Team today!

Courtesy of Cuselleration

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