In all actuality, your mortgage is one of the biggest purchases you will make. Over the life of the mortgage you will probably pay more in interest than you will pay for the house. That is why it is important to find a low mortgage rate. Even a fraction of a percentage point on your mortgage rate can end up saving you thousands of dollars.
The mortgage rate has fluctuated greatly over the last 20 years. As a general rule on how a mortgage rate works, if the economy is heating up, then interest rates will tend to rise; if the economy is cooling down, then interest rates begin to fall. The mortgage rate right now is the lowest it's been in the past few decades. However, most financial experts are expecting the mortgage rate to increase over the next year or two.
There are many types of mortgages you can purchase, each offering a different mortgage rate. Here is a brief explanation of the most common mortgage loans.
Fixed Rate Mortgage Loan
The majority of loans are fixed rate mortgage loans. This type of loan allows you to have a fixed mortgage rate for the life of the loan. Terms range from 10-30 years and are often the highest mortgage rate due to the long-term security of the note.
Adjustable Rate Mortgage Loan
These loans come in a variety of options. The mortgage rate may adjust monthly or annually, use a combination of fixed and adjustable rates or just about any other imaginable combination. Many consumers who prefer to play the mortgage rate market or have short-term plans for ownership like these programs because of the cash savings. The initial benefits of the loan may save you money. Due to the ever-changing market, it's best to consult your lender to understand how this mortgage rate applies to you.
Interest Only Loans
Interest only loans allow you to pay on only the interest for a specified amount of time. For example, if you have a 30-year mortgage, the first five years might be spent paying on the interest alone. This translates into monthly cash flow savings and higher purchasing power. These loans are not for everybody. However, if you are self-disciplined, know of the time frame you will be in your home and understand the potential risks, then this kind of mortgage rate could be an attractive option.
Home Equity Loans
A home equity loan is a revolving line of credit secured by the equity in your home. You have probably heard of taking a second mortgage on your home. This is the kind of mortgage you purchase. The second mortgage rate is directly related to the primary mortgage rate. People take home equity loans to make home improvements, pay off outstanding debts or pay for college tuition. With a low mortgage rate, if you need some extra money for any reason, this kind of loan is good.
There are many alternative programs which can offer a lower initial mortgage rate and can change after a certain period of time. There are many different mortgages for all types of situations, each with a different mortgage rate. In general, a specified mortgage rate depends on the economic climate and the type of mortgage involved.
John Ivie