A mortgage rate is like a price tag flying out of your home's chimney. It is the cost you will pay for borrowing money to pay for your home, on top of the amount of the home's value that is called the "principal." Rates of interest on homes are very low, so buying a home is no longer just a dream. Will they stay that low, though? And what else adds to the cost of the interest as a whole? There are a few things that do, but you can easily sort through them to find the best ways to lower the cost of the home for your needs.
The Prime Rate is the first thing that affects the rate on a home loan. This is the number that the US government chooses to help the economy get better. It is the main interest rate, and most banks use it as a guideline when they give loans to customers or pay interest on savings accounts and other investments. Some lenders do offer subprime rates, which are lower than the prime rate, but they are hard to find and may mean higher fees in other cases.
Second, the mortgage rate can be different from one loan type to the next. For example, the interest rate on a loan will be lower the longer the loan terms are. But if you think about how much you'll have to pay back over the life of the loan, this isn't really a savings at all. Other types of loans, like VA and FHA loans, may also have a rate that is lower than prime or at least close to it.
Even more so, your mortgage rate will be higher the more risk you pose to the company. If you have bad credit, you will usually have to pay more in interest when you buy a home. You should know what your credit score is, and you can find out by getting your credit report. To raise it or keep it high, make sure to pay off loans and credit lines on time, keep your balances as low as possible, and make sure you have enough credit to cover your debt. The more points you have, the less likely you are to be interested.
To find out what rates you qualify for on a home loan, just go to the lenders' websites and ask for a free loan quote. This will give you a good idea of where you stand and let you compare different lenders. Because the difference between a few fractions of a percentage point can cost you thousands of dollars, it makes sense that you will need to carefully look for the lender who can give you the best interest rate. Lastly, before you agree to pay for a loan, you should know how much the mortgage rate is.
