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Mortgage Rates 101 Article
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Shop for the Best Interest Rates Mortgage Companies Offer
from:The interest rates mortgage companies apply to home loans depends on a variety of factors; one of most prominent factors is your credit history. The amount you put down on a loan can also affect the interest rates mortgage companies charge. Banks often require 5 to 10 percent of the total loan to be paid up front; however, a higher down payment, such as a 20 percent down payment will eliminate the need for the borrower to purchase extra insurance to protect the lender. The lender will insure the loan with your down payment.
The interest rates mortgage companies set reflects the purchase of a product. You want a home, but you cannot pay for it upfront, so you ask a lender to buy the house for you. The lending company pays for the house and you pay the lender back with interest, which is profit according to the loan agreement.
The good thing about the interest rates mortgage companies charge is that you can deduct it from your income taxes. This is why many homeowners itemize their deductions. Over the course of a 15 to 30 year mortgage the interest paid can be paid back to you if you itemize, claiming the amount of interest paid on your taxes. In the beginning of the loan period about 90 percent of the monthly payments go to paying the interest back, and then as the loan is paid down more of your payment goes to paying on the principal of the loan.
When shopping for a loan, you should not only look at the interest rates mortgage companies charge, but also the annual percentage rate (APR). The APR is higher than the interest rate, and you need to compare the APR’s from loan to loan. The APR recoups some of the money lost to the lending company for giving you a lower interest rate. The higher the APR the more you are paying out of pocket for your loan. If you borrowed 100,000 and it cost you $2,000 to get that loan through an 8 percent APR then you are actually only borrowing $98,000, because you paid $2,000 out of pocket—but paying interest on $100,000. It is to your advantage to compare APR’s when considering the interest rates mortgage companies set for their loans.
By doing your homework ahead of time while you are house shopping, you can also be shopping for the best mortgage package that you can qualify for. Go on line and check the different lending companies’ websites and check their rates of interest and also compare each APR for each loan. You can check your figures out ahead of time by using a mortgage calculator. The calculator will give you a figure that is near what the bank or other lending institution will offer you. To get the best interest rates mortgage companies offer, it pays to be a good mortgage shopper.
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