Mortgage Loan Rates

Mortgage loan rates can have a dramatic effect on the amount of money you must repay a mortgage lender. To make sure you don’t fall into a money trap, you should take time to learn as much as you can about different rates and how they work.

About Mortgage Loan Rates

Mortgage loan rates (interest rates) are the cost of borrowing money from a mortgage lender. In most cases, these rates are paid through the life of your loan. The rate that you pay can have a significant impact on your monthly mortgage payments. In fact, after all is said and done, you may end up paying more for the interest on your mortgage than you will for the home itself. For example:

Say your new home costs $150,000. You use $30,000 in savings for the down payment, and borrow $120,000 to pay for the rest. A 30-year, $120,000 mortgage with fixed interest rate of 7 percent will cost you $167,000 in interest alone.

This is why getting a mortgage with a reasonable loan rate is so important. By taking time to research the different types of mortgage loan rates that are available, you will be able to make an educated decision about your financial future.

Types of Mortgage Loan Rates

When shopping for a [tag]mortgage[/tag], you will find that there are many different types of mortgage loans that exist. Most of them can be broken down into two major categories: fixed-rate mortgages and adjustable rate mortgages.

Fixed-Rate Mortgages

Sometimes called a conventional mortgage, fixed-rate mortgages are the only type of mortgage that will allow your interest rates and payments to remain constant during the life of your [tag]loan[/tag]. This can be very advantageous to homebuyers, because no matter how high average interest rates rise, the rate you locked in at the beginning of your loan remains the same.

This sort of stability makes budgeting much easier. And, if the homebuyer isn’t confident that they will be making more money in the coming years, they can at least be confident in their ability to make the mortgage payment that was established at the beginning of the loan.

At the same time, fixed-rate mortgages have their disadvantages. If mortgage loan rates are high at the time the mortgage was purchased, the rate will never go down, even when interest rates fall. The only way someone with a fixed-rate mortgage can obtain a lower rate is by refinancing the mortgage loan.

Adjustable-Rate Mortgages

Adjustable rate mortgages (ARMs) are the exact opposite of fixed-rate mortgages. These mortgages have payments and interest rates that fluctuate according to the changes in the economic index. (The index is a guide that lenders use to set mortgage rates.)

There are several advantages to adjustable mortgage interest rates. First off, these mortgages usually feature lower rates and payments early on in the loan. This allows homebuyers to purchase a more expensive home than they may have been able to afford otherwise.

Adjustable rate mortgages also allow you to take advantage of falling interest rates without having to refinance. Unfortunately, this can work against the homebuyer, who will be forced to pay a higher payment and more interest if average interest rates climb.

Mortgage Loan Calculators

There are many different online mortgage calculators that can help you determine how much mortgage you can afford. Some of these calculators can also provide estimated payments based on different mortgage loan rates.