A person who purchases a home can do so in many ways such as rent-to-own, as a cash buyer or via mortgage. A mortgage is a contract between a lender and homebuyer. A lender may be a bank or mortgage lender. The lender provides the cost of the house, so a homebuyer can purchase it immediately. In return, a homebuyer agrees to pay a mortgage. The mortgage requires the homebuyer to pay a monthly amount to the lender based on the amount of the home and other factors. One of these other factors is what sort of mortgage rates boise id one has received.
What Is a Mortgage Rate?
A mortgage interest rate is the amount of money a lender charges for providing a loan to purchase property. The interest rate is generally a percentage of the mortgage that must be paid along with the mortgage principal. It is included in each month’s mortgage payment. The monthly payments can be for as little as 15 years or approximately 30 years depending on the life of the mortgage contract. A mortgage interest rate can change if the homebuyer obtains a home improvement loan or uses an equity home loan.
There are Types of Mortgage Interest Rates for a Home
Before a homebuyer agrees to a mortgage contract, it’s important that they understand the types of mortgage interest rates available. The lender will provide one of a series of interest rate options. The first mortgage interest rate is called a fixed interest rate. The term “fixed” means the percentage charged on the mortgage stays the same throughout the life of the loan.
The second type of interest rate is called an adjustable percentage rate. An adjustable mortgage interest rate is based on the fluctuations associated with the mortgage index. If the mortgage index rate goes up, the homebuyer will pay more on their mortgage payments. If the mortgage index decreases, so will the homebuyer’s mortgage payments.
Is the Annual Percentage Rate the same as an Adjustable Percentage Rage?
No. The annual percentage rate (APR) is a fee added to the mortgage that includes the mortgage interest rate and other charges such as points and broker fees. It is usually a higher rate than the mortgage interest rate charged. It’s important to consider the ARP when comparing the loan options whether the mortgage interest rate is fixed or adjustable.
A Mortgage Interest Rate Matters When Buying a Home
A mortgage interest rate correlates directly with a lender’s perceived risk of the homebuyer repaying the mortgage. This means the lender will base the mortgage interest rate of the loan on whether the homebuyer will default on the mortgage or not. The higher the risk of default, the higher the mortgage interest rate.
Thus, it is important the homebuyer considers all the factors that go into a lender deciding what mortgage interest rate to charge. Factors often include the homebuyer’s credit history and the amount of their down payment. Before searching for a home, it’s important to understand mortgage interest rates and types of mortgage loans.