September 29, 2020

Understanding Mortgage Rates And How They Are Calculated

Understanding mortgage rates is essential if you want to ensure that you take on a loan that does not cause you financial hardship at a later date. Unfortunately many homeowners are now facing the consequences of not doing enough research into the various ways the rates on home loans can differ prior to taking out the mortgage. As long as you have a basic understanding of simple mathematics you should not have any real problems when it comes to choosing the best mortgage deal and rate.

You are probably aware that mortgage rates do vary massively, this is not just dependent upon the particular lender but also down to your personal situation. In simple terms the rate will determine the amount of money that needs to be paid to the lender on top of the amount that was initially borrowed.

A bank is a business that is there to make profit for their shareholders, they do not exist simply to provide a service. By charging an interest rate on a loan they stay profitable and provide dividends to their backers.

A low mortgage rate would allow you to minimize the cost of the overall loan. As a general rule they are only given to those individuals that the lender believes are not at a high risk of defaulting on the repayments. For example a person who has a secure job with a regular income and does not have many loans already in their name is most likely to be able to avail of the best interest rates on a mortgage.

If you are a first time buyer you may also find that low interest rates are made available to you. This is because there would be no capital from a property sale that can be put towards financing the investment and the banks and government want to ensure that as many of us can become homeowners as possible.

You may also be granted a desirable rate if you opt to have a longer loan term. Though a simple calculation would quickly show that over the course of twenty five years you are likely to end up paying the same amount as a shorter term loan with a higher interest rate.

Those people that are believed to fall into a high risk category will find it harder to get the best rates of interest on their mortgages. This includes individuals that do not have a well paid job or cannot put down a large sum as a down payment. A lender would increase the rate to ensure they are able to recoup as much money as possible in the shortest amount of time.

There is also the choice of fixed rates and variable rates of interest on a mortgage loan. Though the former is often though of as desirable as it offers the opportunity to always have an understanding of the amount of money that is still owed, a variable rate has the advantage of moving in sync with the condition of the national economy.

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