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Mortgage Interest Rates

May 27, 2008  |  Difficulty: Easy

Path to mortage
When learning about homeownership and mortgages, you probably hear a common theme- the interest rate. The interest rate is set for a period of time; for as short as 6 months to as long as 10 years. Over this time span you will pay back the assigned interest rate.

When you get a low interest rate, you will pay back less money over the course of your mortgage. This can add up to well over thousands of dollars.

Once you buy your home, your mortgage will be at its all time high. When first paying it off, the bulk of your payments will be going toward interest charges. The smaller portion of your payment will be toward decreasing the loan principal or the amount of money that you have borrowed. So, if you have a low interest rate, you will not have to pay as much toward the loan, and thus you are saving a lot of money over time.

To get the best mortgage interest rates possible, you have to compare loan companies to investigate who will give you the better deal. Don’t forget to negotiate. The loan company is seeking your business; they are not simply doing you a favor. Actually the loan companies need you as a borrower to keep the company flourishing. If you pay back your loan as you are supposed to, the loaning companies will profit!

Another thing you should know about interest rates is that mortgage lenders like to give you rates that will make them the most money. If you plan on having a “locked in” rate, most lenders will make you pay more for mortgage. They do this so that they can make more money, even when rates increase. When you protect yourself from increasing rates by locking them in, you will have to pay more because the lender wants to maintain a profit.

The following suggestion is for the risk takers. If you have a good credit history and a stable job, some would advise you to get a variable rate mortgage. This interest rate is “variable” in the sense that the interest you must pay can and will change along with the market. This can be risky, but some may tell you that you will save money with a variable rate because:
  • The interest that comes with variable rates is typically less than “locked in” rates.
  • When rates seem to be increasing you may be able to convert to a “locked in” rate, with no charge or penalty to you.
This is a choice that you should make a long with a sound financial advisor, but some say that you can do nothing but win with a variable rate mortgage, provided that you can switch without any charges or penalties. However, if you want to ensure that you are getting a stable interest rate without the ups and downs of the market, a locked in rate may be the right choice for you.

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