What Are Mortgage Rates?

Buying a property with a mortgage is quite possibly one of the biggest financial transactions that you will enter into. Normally a bank or even a mortgage lender will finance around 80% of the total price for your home. You will then agree to pay it back, with interest over a period of time. When you compare mortgage rates and loa

How are Rates Calculated?

With most mortgages, you will pay back a set amount of what you have borrowed, plus interest. This will be done on a monthly basis. Your lender will usually try and implement some kind of amortization formula and they will create a payment schedule. This will break down every payment into the principal amount and then the interest. If you make your payments on time then the loan will be paid by the end of the term. If you have a fixed loan then every payment will be an equal amount. If you are on an adjustable-rate loan then the payout will change over time as the interest fluctuates. You can always undertake a search to compare the best mortgage rates online if you want to get the best deal.

Monthly Payment

Your payments every month will usually depend on the price of your home, the loan term, the down payment and even the property tax. You will also have to pay the insurance and then the interest rate on the loan. This will usually be dependent on the credit score that you have. You can usually take advantage of an online mortgage calculator if you aren’t sure about what you’re supposed to be paying for.

What’s a Fixed-Rate Mortgage?

If you take out a fixed-rate mortgage then your interest rate will be set for the duration of the loan and it will not change. The payment will also be the same for the length of the loan so you won’t have to worry about any surprises. Loans do have a repayment life of around 30 years but they are available in shorter lengths too. You have some which are around 10 years, 15 years or even 20 years. Shorter loans tend to have longer monthly payments but the interest you pay will be lower.

What’s an Adjustable-Rate Mortgage?

Next up, adjustable-rate mortgages. The interest rate on a mortgage like this is not locked in and the payments will change as the loan goes on. Most of the time you will have a cap on how much the interest rate fluctuates and how often it can change. That being said when the rate goes either up or down, the lender will then recalculate the monthly payment. This will then remain stable until you pay the next adjustment rate so it’s important to keep this in mind as much as possible. It will help you to make sure that you have enough money kept back to make your payments and it will also safeguard you against any changes in the future.