Mortgage Rate Reduction
Current mortgage rates and how they affect you
For some, the interest rate a pretty bland number that seems to change almost daily basis. But if you are applying for a credit card, buy a new car or apply for a loan, this number can significantly affect how much you pay each month and the term or length of your loan. At this writing, Mortgages are low, and it is a good time to buy a home or refinance an existing mortgage at a lower price.
The interest rate is defined as the amount of money it will cost you to borrow a certain amount of money from a bank or lender. It is almost impossible accurately predict mortgage interest rates, one of the biggest factors affecting them is simple supply and demand. If more people buy houses that are more money is borrowed, which means that lenders may charge higher rates to borrow money. In a slow economy, fewer people borrow money, is generally lower to attract customers and there is more money to borrow.
The mortgage interest rate will affect you both short term and long term. A rate that is lower means that your monthly payments are lower, and it also means that over the term of the mortgage market, you pay less. Whereas the traditional mortgage are taken out for a period of 30 years, a lower rate, which you might be able to sign a shorter mortgage, 20 or even 15 years. Also, it means that you will own your home directly, sooner rather than later – a big advantage.
The total amount you'll end up paying for your home, can potentially vary lot with just a small change in interest rates. A reduction of interest rates in just a single point could mean that a homeowner with a traditional 30 years mortgage can enjoy average savings of approximately $ 50,000 over the term of their mortgage. And a small increase in interest rates by just one or two percent can result in monthly payments which is somewhere between $ 50 and $ 250 higher, depending on how much your home cost to begin with.
When it comes to buying a home and take a mortgage you basically have two options – a fixed rate mortgage (FRM) or adjustable rate mortgage (ARM). An FRM is safer and more stable solution – the interest on the loan changes not whether interest rates generally go up or down. The obvious drawback of a FRM is that the interest rate may be lowered, resulting in you making higher monthly payments than you would normally do unless you refinance. It is estimated that about 70% of all homebuyers today are taking a fixed rate mortgage, rather than going with the more risky adjustable mortgages.
If you have an FRM at a higher interest rate and rates go lower, your only option is to take advantage of the lower rate is to refinance. Some financial experts will tell you that it is only worth refinancing if the interest rate on your new mortgage will be at least 2% lower than your current rate although of course the decision to refinance or not is up to you. You should also take into account how long you plan to stay in your current home – if you plan moving within a year or two, probably not pay you to refinance.
An ARM is riskier of the two options – as the name suggests, can yield varies depending on interest rates at the time, which means your monthly payments may be higher or lower. If you have a good rate to begin with, and you can afford to pay the extra payments should interest rates rise, this might be a good option for you. If an interest rate rise will hurt you financially – or if just the cautious type who does not like taking chances – an ARM loan maybe isn'ta good idea.
So if you apply for a loan, pay special looks at the key interest rate – it can potentially save you or cost you a lot of money over the next 30 years.
About the Author
Rachel Jackson is a freelance writer who writes about mortgages and home ownership, offering tips such as how to find the lowest mortgage rates.