Mortgage Loan Rates

There are mainly two types of mortgages – fixed rate mortgage and adjustable rate mortgage (ARM). With fixed rate mortgages, interest rates do not change with time. But in the case of adjustable rate mortgages, the interest rates are adjusted at certain intervals. Mortgage loan rates greatly differ with state, lending company, loan amount, value of the security, credit rating of the buyer and the type of the loan.

Mortgage loan rates are governed primarily by the Federal Reserve Board. So, if the board changes the interest rates, the mortgage lenders should adjust their interest rates accordingly. Mortgage loan rates are also influenced by many market and economic factors such as inflation. Generally, lower mortgage loan rates can be availed if you pay a down payment of 20% or more of the loan amount. On the other hand, if you pay a down payment of 5% or less of the loan amount, you may only qualify for a higher interest loan.

Generally, the mortgage loan rates fall somewhere between 5% and 13%. Long term loans have slightly higher interest rates than short-term loans; usually the difference is below 1%. Loan rates also differ with mortgage loan types such as commercial loans, FHA loans, VA loans, home equity loans, home improvement loans, and bad credit/sub prime mortgage loans. First mortgage loan rates are usually lower than those of second mortgages.

Many Internet sites provide comparison and reviews of different mortgage loan rates offered by lenders. Most mortgage lenders update their records and rates daily. Many Internet sites also provide mortgage rate calculators, which help you calculate the exact interest rates and monthly payment amounts. These Internet sites also provide information on loan securing points, closing costs and fees, monthly installments, and penalties.

3 Details That Affect the Mortgage Rate Offered

Everyone is aware of the rates that are offered by lenders, however, these are basically the lowest advertised interest rates available to borrowers. Very often, borrowers may feel that they have been lied to when they do not receive the rate that they are hearing or reading about. However, there is definitely a reason for this because there are 3 details that affect the mortgage rate that is offered to a borrower.

1. Debt to income – The debt to income ratio (DTI) is a calculation of the total debt held by a borrower in comparison to the total income. Mortgage products have maximum debt to income ratios that are acceptable. In addition, lenders may add their own restrictions which may further reduce the debt to income that is necessary for a particular mortgage program. Since debt to income measures the total amount of debt that a borrower has and will have with the new mortgage, it is important that as much debt as possible is reduced prior to applying for a mortgage. The higher the DTI, the mortgage rate offered to a borrower will also be higher.

2. Credit Scores – While DTI is an important measurement of debt and income held by a borrower, credit scores are a reflection of that debt and how it is managed. While both scores and credit history are considered when processing a mortgage, the actual middle score will be used when determining the mortgage rate to be offered. Borrowers who have higher credit scores, are offered the lowest rates.

3. Loan to Value – The loan to value (LTV) of a mortgage is the measurement of the loan against the value of the property that is either being purchased or refinanced. It is the final appraisal that determines the loan to value for the lender. While different mortgage programs have varying loan to value rules, such as FHA and VA, conventional mortgages require the lowest loan to value. This means that borrowers must have a larger down payment for this type of mortgage. Any LTV above 80% will require that the borrower pay private mortgage insurance. In addition, with higher loan to values, the mortgage rate will also be higher.

Lenders use rate sheets when quoting a mortgage rate to a borrower. These rate sheets have adjustments for each of these separate occurrences listed above. Each adjustment adds a certain percentage to the initial mortgage rate. For this reason, the final mortgage rate that a borrower is offered and accepts is seldom the same as the advertised rate.

Hot Tips For Getting The Best Mortgage Loans

A mortgage loan is one of the most basic types of loans you can get from a bank, and meets one of the most basic of human needs, namely shelter. To this end, it is not quite as demanding as getting loans geared towards other things, especially luxury items. Still, because of the sheer amount of money involved in getting a housing loan, you should do your homework first before applying for a mortgage loan to keep yourself from biting off more than you can chew. Here are a few tips to remember when considering a mortgage loan.

Shop for the House Before Applying for the Loan – like with most loans, it’s best to get an idea of what you want before applying for the loan itself. That way, when you actually present your case to the one approving your loan, you can give more solid evidence of what you’re intending to do with the money you’re borrowing. To this end, though, you should shop within your means. Only consider houses that are within your budget, and situated within neighborhoods that are within your financial capacity as well. While mortgage loans are also available for people who are intending to finance the actual building of a house from the ground up, it’s easier to get a loan when you shop for a house that’s FSBO (For Sale By Owner).

Keep your Credit History and Financial Capacity in Mind – this will be a major consideration of the person approving your mortgage loan. Bad credit history ratings or unemployment are sure fire snags that will weigh heavily against your favor when applying for a mortgage loan. Make sure that you are financially stable and can back up the loan you’re going for, with enough income to cover the interest rate as well as the monthly balance of the mortgage given it’s deadline to finish paying it.

Use a Mortgage Loan Calculator and Consider Different Loan Packages – not all loans for mortgage are created equal. Some banks offer higher interest rates than others, and there are those that offer longer terms of payment for larger initial downpayments. Still others allow for additional payments on the mortgage aside from the monthly due and interest, and these additional payments are applied directly towards lessening the overall sum of the loan’s principal. With all the different packages available, choose one that you can work well with, and to help you with your calculations download a mortgage loan calculator program from the internet. This is an invaluable tool for keeping track of your mortgage.

Consider Using an Escrow – escrow accounts work in the favor of the lending institution; as such, getting one helps improve your odds of getting a base mortgage loan approved. An escrow account is essentially a separate account that you open that handles the taxes and insurance payments on your house for you. This favors the lender somewhat because escrow accounts are tied up with your mortgage, meaning the lender gets an additional bank account in your name. However, the advantage of an escrow account for the lendee is that it acts as a buffer for the additional payments that he or she would normally have to worry about aside from mortgage. With an escrow account, all payments are sent to the lender, and they take care of the paperwork and housing related bills for you.

Consider Investment Property Financing – if, and only if, you’re getting a mortgage loan to buy a house NOT to live in, but rather as an investment to resell later, you can apply for Investment Property Financing. The mortgage loan you get from this treats the property you’re buying as a commodity that you will eventually be reselling. The mortgage terms for this are different and a bit more lenient than that of a regular housing loan. Still, even if you intend to live in the house you’re buying, if you know that it’s going to be a temporary residence that you’ll be reselling in a decade or less, you should still be able to work it as an Investment Property loan rather than a straight Housing Loan.

Get Mortgage Protection Insurance – finally, be sure to get mortgage protection insurance. This will increase the monthly payments you have to make, but it has quite a few advantages. For example, if you happen to have only one primary breadwinner in the house that suddenly becomes unemployed, if the insurance policy ties in to that breadwinner as the sole person responsible for the mortgage payments, the insurance company will be liable to pay off the remainder of the mortgage off on your behalf. Tying a mortgage protection insurance plan into an escrow account helps keep things tidy, and while you may wind up paying a bit more monthly this way, the benefits far outweigh the extra cost.