Things You Should Know About Mortgage Rates
A mortgage rate is the amount the mortgage lender charges for a mortgage loan. Mortgage rates are usually determined by the bank and are either fixed at a certain interest rate, or flexible, fluctuating along with a benchmark interest rate also known as the interest-only rate. Mortgage rates may also be determined by a mortgagee, sometimes called the risk-free interest rate or the yield to maturity. The term mortgage can also refer to an interest only mortgage where a borrower has fixed payments that do not change during the life of the loan. There are many variables involved in determining the mortgage rates and you should understand them before you apply.
The mortgage rates that are decided on by the bank are usually called the Interest Only or Fixed Rate mortgages. They remain at the same rate for the entire term, which is usually 25 years. On the other hand, if the interest rates go up for one year, then the adjustable mortgage rates will reduce. This is done to protect the bank, as they would have to start charging more money, if mortgage rates were to go significantly higher.
Fixed rate mortgages get their initial value from an interest-only mortgage loan or from the Bank. For people with good credit this does not matter much, but for borrowers with poor credit, this may mean a loan that comes with a higher interest rate and no flexibility at all. In addition, the term of the loan also depends on the type of mortgage rates and the term of the loan will determine how long it takes for the repayments to begin. The longer the term of the mortgage, the lower the monthly payments. However, the longer the term, the longer the mortgage costs the borrower.
Another way the mortgage rates are decided is by whether the bank or the mortgage lender has locked in the rates before the loan was given. The mortgage lender will often have its own mortgage rates established before the refinance loan is taken out. If you try to refinance while these rates are locked in, you will likely be offered very high rates. In order to save money by locking in your mortgage rates, talk to the lender when you apply for your new home loan.
There are some instances when the mortgage rates can go down after they have been set. Historically, the mortgage interest rates tend to stay fairly stable for the majority of the period prior to a mortgage rate change. For instance, if there are several months where the mortgage rates are consistently higher than normal, mortgage interest rates may start falling in May. This type of short term fluctuation does not last for very long. It is important to remember though, that mortgage interest rates have historically been relatively stable for most of the time. Therefore, if you plan to refinance soon, you may want to wait and see if there are any significant changes prior to taking out your new mortgage loan.
Mortgage lenders do offer various specials and incentive programs for borrowers with good credit. Borrowers who meet specific requirements and need to have good mortgage rates will find more competitive offers from lenders than those without good credit. Lenders will also be more willing to approve refinancing for borrowers with poor credit as it will be seen as a risk to the lenders if the borrower falls into default.