TODAY'S FEATURED MORTGAGE RATES
What is a fixed-rate loan?
A fixed-rate loan is exactly what it sounds like: a loan for which the interest rate does not change over time. These loans are ideal for borrowers who want stability of set payments or those who don’t want to gamble on rates going up or down.
Another key reason to choose a fixed-rate mortgage is a suspected increase to interest rates. If you lock in a flat rate now, and then interest rates rise over the term of your mortgage, your rate will stay the same and you could save money.
Types of fixed-rate mortgages
15/20/30-Year Mortgages:Mortgages come with pre-agreed maturity dates. 15-year, 20-year, or 30-year maturities are the most common lengths. A 15-year mortgage means that you’ll be paying monthly payments on the value of your house for 15 years. A 20-year means you’ll be paying for 20 years, and so on.
FHA Mortgages: An FHA mortgage is a mortgage that is issued by a private entity (such as a bank or credit union), that is then insured by the Federal Housing Administration. Such mortgages typically come with looser requirements for down payments and credit scores.
“No-Fee” Mortgages: While they might sound great, no-fee mortgages are not a free lunch. Instead of charging fees upfront for appraisals, insurance, processing and other expenses, the lender instead just factors all of that into the interest rate for the loan. That means slightly higher monthly premiums, with less cash outlay at the beginning of the mortgage.
Fixed-rate loan versus an ARM loan
Choosing between a fixed-rate and an adjustable-rate mortgage can be tricky. On one hand, a fixed-rate mortgage allows for more predictable expenses. That means more effective financial planning and a more stable budget. On the other hand, if budget stability is less of an issue for you, and you can pay off your loan quickly, an adjustable-rate mortgage has the potential to save you money.
While a fixed-rate mortgage charges a fixed interest rate for the entirety of the loan, an adjustable-rate mortgage fluctuates according to economic status and federal interest rates. An ARM’s rate consists of two parts. The first is the base rate, which is calculated using some combination of the federal funds rate or the London Interbank Offer Rate. The second part is your lender’s spread that’s stacked on top of the base rate, so your lender is protected in case of a low-rate event (like a recession). The spread is stable, but the base rate changes. Therefore, if you think federal rates are going to decrease, an ARM could be for you!
How to get the best mortgage rates
There are several key components that factor into the rate you’ll be charged on your mortgage. All of them relate directly to one concept: risk. Specifically, a lender will charge higher interest rates for higher-risk borrowers.
The most effective way to lower your mortgage rate is to lower the risk your lender must face in taking you on as a borrower. Establishing a strong credit history shows a lender that the chances of you failing to pay them back are as low. Maintaining a high credit score is a great way to do this, because having a high credit score means you always pay your debts.
You can also put more money down before you take out a mortgage. If you’re buying a $250,000 house, and you ask a bank for the full $250,000, that signals two things: first, it shows that you don’t have money for a down payment, which lowers your chances of having money for monthly payments down the line. Second, it increases the amount of money the lender must trust you to pay back.
Compare with first paying down $100,000 of the house’s value, and you can see why the lender might charge lower rates for higher down payments.
Finally, you should seek to limit your lender’s time exposure by opting for a 15-year mortgage rather than a 20- or 30-year. By subjecting your lender to fewer years of lending, you’re significantly lowering their risk and saving yourself money.
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