Whether you’re buying a home or refinancing an existing loan, you need to know about mortgage rates and how they can affect your finances. You also want to understand how to get the best rate available and where to find it.
Mortgages are loans that allow you to purchase a home without having the cash in your account. The lender gives you a loan that you then pay back over time with monthly payments. In return, you have to pay a certain percentage of the amount that you borrowed in interest.
The rate you get is based on many factors, including the size of your down payment and your credit history. The type of mortgage you get also has a big impact on your rate.
How to Find the Right Mortgage for You
There are a lot of mortgage options for every situation. Even people with poor credit or no down payment can find financing through programs like FHA loans.
You can compare the rates of several lenders before you make a decision, and some lenders have their own websites that offer comparison tools. Taking the time to shop around can save you thousands in interest over the life of your mortgage.
The Economy and Market Forces
While the overall economy is a major influence on mortgage rates, it’s not the only one. Inflation, unemployment and the Federal Reserve’s monetary policies all have an effect on the cost of borrowing money.
The Federal Reserve makes a series of decisions that affect short-term interest rates and, therefore, the cost of mortgages. The Fed increases or decreases the federal funds rate, which is what lenders charge on short-term loans.
When the Federal Reserve raises or lowers the rate, it’s largely to keep inflation under control and stimulate growth. It can also do so to help the economy in times of recession or when an emergency arises that threatens economic stability.
Lenders also determine their margins by taking into account the risk that borrowers pose to the bank, says Michael Koors, president and CEO of American Financial Resources. That’s why a 30-year fixed-rate mortgage has a higher rate than a 15-year, for example.
A good mortgage rate is the one that offers you the lowest cost over the long term. This is a good indicator of the risk that the lender will take with you, so it’s important to shop around for one that meets your needs.
How to Lock Your Rate
A mortgage rate lock is a way for you to secure a particular interest rate for a set period of time, typically until your closing date. This can be helpful if you’re planning to buy a house in a specific area or are unsure of your credit rating.
How Much to Pay for a Mortgage
A large part of your mortgage payment is interest, which adds up fast. By paying your mortgage off early, you can reduce the amount of interest you’re charged.