Mortgage Interest Rates Explained
The first step to becoming a homeowner is to secure a mortgage from a lender. The amount you can borrow and the rate you qualify for depends on factors that lenders use to assess your financial capability. This includes reviewing your credit score, income stability, and your current financial obligations. The amount you can put down towards the final purchase price of the home also affects the rates you can qualify for.
Mortgage Interest Rates Overview
The most important part of a mortgage is its interest rate. This simply refers to the additional amount that lenders charge and is often a percentage of the loan amount. The higher the interest rate, the more you pay. You should always aim to get the best mortgage interest rates possible.
Monthly payments for borrowing $100,000 at a rate of 5% over 25 years will be about $790. The total amount at the end of the term is about $142,342 assuming you pay the same amount each month. That additional amount is essentially the interest you pay for borrowing.
Factors That Affect Your Rates
Lenders assess all of the following to determine your rates.
- Credit score
- Employment history
- Income stability
- Down deposit
Lenders take on a certain amount of risk. Anything that could be a potential red flag, whether it be a history of late payments or unstable income, will likely result in a higher rate. This is why all potential homebuyers are strongly encouraged to get their finances in order before applying.
The Difference a Single Percentage Makes
The interest rate on your mortgage matters. Even a single percentage more could have you paying tens of thousands of dollars over the course of the loan.
If you were only able to qualify for 6% on a 25 year mortgage for $150,000, the total amount you would pay is about $289,935. However, qualifying for the same loan at 5% would be about $263,067 or a savings of approximately $26,868.
Using a mortgage calculator in this instance allows you to see how much of a difference one percentage makes.
If you already have a mortgage, you can still secure better rates by refinancing. This simply replaces your mortgage with a new one. If the rate you are paying is higher than what interest rates are now, it makes sense to refinance your mortgage.
Refinancing can easily save you thousands of dollars by securing a better rate but it can also help you achieve your financial goals faster. Mortgage refinancing can help you:
- Lock in a lower rate
- Shorten the loan term
- Switch from a variable to a fixed rate loan
- Tap into your home equity
- Consolidate your debt
Caution needs to be taken though. Refinancing is not always ideal for every situation, particularly if you have plans to move out of your property within the next few years. Any potential savings would be negated by the refinancing costs. Your long term objective needs to be seriously considered.
Refinance With Loan Monster
At Loan Monster, we can help you make sense of everything and process your application quickly. If you have any questions about mortgage interest rates, repayment terms or concerns about your eligibility, we are here to help.
We offer a range of financial services and can recommend an appropriate financing option that fits your circumstances. Simply fill out the form on this page to get started. Doing so only takes a few minutes and you will get a response back from us within 24 hours, even on the weekends.