Understanding the Basics of Interest for Your Mortgage

When someone takes out a mortgage, one of the biggest factors to consider is the interest rate on the mortgage. The interest rate is the “extra” amount that someone is going to pay the bank in exchange for putting up the rest of the cost after the buyer has paid the down payment.

The interest rate is going to play a major role in the total cost someone will pay in addition to their monthly mortgage payment.

Therefore, it is important for everyone to take the time to understand the basics of their mortgage interest rate. It can be helpful to track the 15-, 30- and 20-year mortgage rates as well. This is a good barometer of the housing market.

The Preapproval Process

The first step in understanding the interest rate on a home is to get preapproved. In essence, this is the lender giving the buyer the green light to go and look for a home.

By getting preapproved, the lender is telling the buyer that they are willing to give them a home loan up to a certain amount. To make this decision, the lender is going to look at the person’s finances, credit score, debt, and a number of other factors.

This is often the first step in the mortgage process. Before even thinking about the interest rates, the person has to be able to get a loan. This is the preapproval process.

Understanding a Fixed-Rate Mortgage

One of the most common mortgages out there is the fixed-rate mortgage. While the bank can make a loan for any number of years, the most common ones are 15- and 30-year mortgages.

In a fixed-rate loan, the interest rate on the loan is going to stay the same for the life of the loan. It will not change if the market changes. This gives someone comfort because they are able to budget safely, knowing that their monthly payment will be virtually the same during the life of the loan.

While it might change slightly if their taxes or homeowners insurance rate changes, the mortgage payment itself is going to stay the same. A fixed-rate mortgage is arguably the most common and most popular home loan on the market.

Understanding an Adjustable Rate Mortgage

The other option for a home loan is an adjustable-rate mortgage. This idea is a bit newer and the interest rate might vary with the market. This means that someone’s mortgage payment could go up or down, depending on what the market is doing. This can be risky; however, the low interest rate upfront can help someone afford a home earlier in the process. There are typically limits to how far up or down the interest rate can go during the life of the loan.

Help with Home Loans from Mortgage Investors Group

Those who are looking for help with a home loan should trust the team at Mortgage Investors Group. Call 800-489-8910 today to learn how we can find you the home of your dreams!