Mortgage Services

When you borrow money from a lender, he is compensated for the use of the money by collecting an interest payment. A mortgage is no different. When people talk about mortgage rates, they are talking about the interest rate on a particular mortgage. When shopping for a mortgage, make sure to compare mortgage rates as fractions of interest rates can and will make a huge difference in your monthly payment. As you will find out, 30 year mortgage rates will differ from 15 year mortgage rates. Other types of mortgages rates will differ as well.

How Rates Are Set

So how are these rates set? Does a lender just decide what to charge? Actually, with the competition from all the on line lenders and the proliferation of on line brokers connecting lenders to borrowers, banks have to be competitive, and will work with you to give you as good a rate as they can.

What Does A Lender Look At?

A lender will look at things such as your credit history, if you have late payments, a bankruptcy, or default in your past. Any sign of credit risk and you will probably end up paying a higher interest rate.

The Two Basic Types Of Loans

The two basic types of loans are fixed and variable. With a fixed loan, the interest rate stays the same over the life of the mortgage. Your first payment will be the same as the last. A variable or adjustable rate mortgage (ARM) will have a fixed rate for a set number of years called an introductory period, 5 years is common, then the rate will change either up or down according to current conditions. There are variations of these two basic types, your lender will be able to tell you which may be the best choice for your situation.

A jumbo mortgage is a loan that is above the maximum amount, at this writing that's $417,000. with this type of loan, the borrower will have to pay a higher interest rate to protect the lender in the event of a default. A luxury home may be harder for the lender to sell in the case of default, and he'd be left holding the bag.

If rates are on the high side when you are looking for a mortgage, one way to reduce interest rates is to buy down the rate, meaning paying what's called "points". In essence what you are doing is prepaying a percentage of the interest upfront thereby lower the overall rate over the life of the loan.

Mortgage Services |