How Do Mortgage Rates Work?

 

What’s a Mortgage?

First things first: what’s a mortgage exactly? This is a large-sum loan you can use to finance the purchase of a home. Typically, lenders will give you 80% of the property price.

While you can get a mortgage from speedposts  your bank (or other ones), you can also get them from credit unions, mortgage brokers (such as this broker), and mortgage marketplaces.

How Do Mortgage Rates Work?

When you apply for a mortgage, the lender will tell you how much interest you’ll have to pay on your loan. This means that not only will you have to pay back the amount borrowed, but a little extra. This is how they’ll make money off of lending it to you.

Historically, mortgage interest rates range from 1-4%, depending on the term length you choose. To get the lowest rate possible, you’ll want to select a longer term length, such as 30 years (this is what most homeowners go for).

Shorter term lengths have higher rates attached to them, as well as bigger monthly payments. However, you’ll be paying less in interest when you look at the big picture, especially when compared to 30-year mortgage rates.

Whatever you choose, in the majority of cases, whenever you make your monthly payment, a small amount goes towards paying the interest  bullbearforex and the rest goes towards the principal (the base loan amount). There are some exceptions, but we’ll discuss that later.

Types of Mortgage Rates

There are 2 main types of mortgages: fixed-rate and adjustable-rate. There are also interest-only and jumbo mortgage loans, which we’ll also discuss. Read on to find out more about each type.

Fixed-Rate Mortgage

As the name suggests, with a fixed-rate mortgage, the rate stays the same for the entire lifetime of the loan. So if you signed a mortgage with a 2% interest rate, that’s how much you’ll pay for the next 10 to 30 years. Because of this, you can expect your monthly payments to be the same too.

If you have good income, a fixed-rate mortgage can be worth it. While most people opt for a 30-year loan, some go for 10, 15, or 20. The monthly onlineattorney  payments are much bigger, but they’ll be paid off quicker, which means you’ll spend less on interest costs.

For all the above reasons, a fixed-rate mortgage is good for those who plan on staying in their homes long term.