Mortgage loans are a type of loan where funds get disbursed upon committing your property. However, one must also consider the interest rates before availing of the loan, as it can ultimately make or break your home-buying decision. This blog post highlights the diverse aspects of mortgage loan rates before you purchase a home.
5 things about mortgage interest rates before purchasing a home
Interest rates are an inevitable part of mortgage loans. It gets added to the principal or ground cost of the car or the house you are buying. And the rates generally range from 9.50% p.a, with repayment tenure of up to 30 years.
Hence, consider this vital information before applying for a mortgage loan:
- This interest rate is an additional payment apart from the monthly mortgage payment. Hence it’s crucial to calculate this rate before purchasing a new home to know your spending.
- Check how you can bring down the interest rate. Research to find means like, for instance, planning for a shorter loan tenure. They are highly beneficial as you are paying a higher down payment. So you will pay your loan in 10 to 15 years instead of 20- 30 years.
- Compare various mortgage lenders and loan offers without hanging on to the first option since, at times, you might find yourself paying higher interest rates. So keep looking until you find a reasonable interest rate.
- Check the different interest rates from fixed to adjustable rate mortgages. Choosing a fixed mortgage doesn’t fluctuate the interest rates and gives you more authority over your spending.
- Note your financial status as they affect the interest rate, and check with your chosen lender how your financial status affects the interest. This is an essential point to consider before applying for a mortgage loan if you wish for the best outcome and purchase the home of your choice.
So, ensure that your finances, savings, credit score, income, and mortgage loan documents required are in order starting today to get the best interest rates.
Different types of mortgage loan interest rates
Mortgages come with two distinct types of interest rates: fixed and adjustable.
- The fixed interest rate remains unchanged throughout the loan tenure
- The adjustable interest rate varies with the financial market fluctuations
Factors that decide mortgage loan interest rates
A mortgage loan is one of the safest and most popular loans among new homeowners. This is because they offer the maximum value, competitive interest rates, flexible repayment processes, and tenures. However, the interest rates are calculated for each borrower, either salaried, self-employed, or business entity, based on some factors. These include;
- The type of property you mortgage
- The current market value
- Type of loan
- Credit score
- Borrower’s income
How to calculate the interest rates you need to pay on mortgage loans?
Mortgage interest is calculated in arrears from the month ahead of your payment date. And while applying for the loan, you will get an amortisation schedule from the lender displaying the cost breakdown for the monthly principal and interest in your loan tenure.
At the beginning of your loan journey, the bulk of your payment goes toward interest. Your payment toward the loan happens as you enter your loan tenure. Most financial institutions and non banking entities offer mortgage loan rates at the time of application and allow you only to calculate the EMI.
While applying for a mortgage loan, research and speak with a professional to ensure you understand everything about the process. And also, take a look at your finances to determine if you can pay up the mortgage loan rates. Though it’s time-consuming, you will end up making a financial decision that will be manageable for years to come.
Frequently Asked Questions
Q1: What is the difference between fixed and adjustable mortgage interest rates?
A: A fixed interest rate remains constant throughout the loan term, providing predictable monthly payments. An adjustable interest rate, on the other hand, can change periodically, impacting your payments. Fixed rates offer stability, while adjustable rates may offer initial lower payments but come with potential increases.
Q2: How can I secure the best mortgage loan interest rate?
A: To secure the best mortgage loan interest rate, maintain a good credit score, shop around and compare rates from multiple lenders, consider paying points to lower your interest rate, and opt for a shorter loan term if your budget allows.
Q3: What is an Annual Percentage Rate (APR)?
A: The Annual Percentage Rate (APR) represents the true cost of borrowing on a yearly basis, including both the interest rate and certain fees. Comparing APRs from different lenders helps you understand the total cost of your mortgage.
Q4: Can I negotiate my mortgage loan interest rate?
A: Yes, you can negotiate your mortgage loan interest rate. Be prepared to demonstrate your creditworthiness and consider obtaining pre-approval from multiple lenders. Negotiating can potentially result in a lower interest rate or better loan terms.
Q5: What is the impact of economic factors on mortgage loan interest rates?
A: Economic factors, such as inflation rates, employment levels, and housing market trends, influence mortgage loan interest rates. During periods of economic growth, rates may rise, whereas during economic downturns, rates may decrease to stimulate borrowing and spending.