There are many options and many other things that affect the mortgage rate that a person may have on their next home. Some of these options are things that a person may choose, while others may be determined by past credit and financial history.
First we will look at the difference between a mortgage rate that is fixed and a mortgage rate that is adjustable. A fixed rate mortgage is just that. Once you sign the papers and apply for the loan your mortgage rate will be fixed for the duration of the loan. It cannot go up or down. An adjustable rate mortgage (also know as an ARM) can go up or down. Whether or not your mortgage rate goes up or down is based on an index. This index can fluctuate, and your mortgage rate with it. ARMs may seem good because they often offer a lower rate to start with, but there is no telling where the rate will climb to. This means that when interest rates are high you could be paying a very high mortgage rate.
Another thing that can effect your mortgage rate is what is known as a buy down. For a buy down, the borrower agrees to pay a set amount of money to lower the interest rate for a given period of time. The money is usually put into the purchase price of the home and the lower rate generally only applies for a few years at the beginning of the loan. Buy downs are usually done to help someone get into a home on a lower payment. With a buy down you must remember that eventually the rate will go up and your mortgage will be higher.
Something that none of us can get away from when it comes to mortgage rates is our credit history. Credit history will ultimately determine the rate you will get. Often lenders will advertise a very low interest rate but when a person applies they are not able to obtain that rate. The rate is made to look good but is only obtainable by someone with a very good credit history. Based on the current index and your past credit history, the lender will issue a mortgage rate.
One thing that many people don’t know about mortgage rates, is that most lenders and banks base their rates on the same indexes. Interest rates will generally be the same wherever you go. The thing that separates different lenders is what they are willing to do for you, the consumer. Many lenders will offer incentives to get your business. Shop around and see what incentives lenders offer.
Mortgage rates can fluctuate on a daily basis. This fluctuation can mean twenty to thirty dollars more a month on a mortgage payment. It is important to keep an eye on the rates by keeping in touch with your lender. Take your lender’s advice on when the best time is to lock in your mortgage rate. Once you have locked in the rate, it will remain there even if you have not yet signed the loan papers.
Other Resources:
To see how much money your net mortgage will cost both long and short term, use this Amortization Schedule
Other Resources and Links:
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