5 Things You Did Not Know About Mortgage Rates

When you are planning to buy a house or commercial property for business, you are likely to apply for mortgage. Banks and other financial institutions offer wide varieties of loans to purchase property depending on your financial ability and risk appetite. Mortgage is the legal document by which a borrower pledges a property as security to the lender. In the event of non payment of loan lender deserves the right to sell the property to recover loan and accrued interest. In broader sense, mortgage is referred to the loan itself and mortgage rate is the rate of interest charged for the loan.

Here are some points on mortgage rates that you may like to know while applying:

1. Interest rate of mortgage is used for calculating the amount of interest that borrower would pay to the lender for a loan. The rates quoted by lenders are on annual basis. However, payment of interest should be made on monthly basis for nearly all home mortgages. As such, the rate quoted need to be divided by twelve to calculate monthly payment.
2. Rate of interest for a mortgage may vary with length and amount of loan. Rate of interest for mortgage is usually lower for short term loans and so is the total interest. There is a flip side of this coin. By reducing the loan amount you have to come up with more cash for down payment and by reducing the loan tenure your monthly payments swells up substantially.
3. A damaged credit report may compel the borrower to pay higher rate of interest for mortgage.
4. Fixed rate mortgage (FRM) offers fixed monthly payment at a fixed rate of interest. There are some fixed rate mortgages that offer a period of ‘interest only’ payment for initial few years before switching to amortized monthly payments. Rate of interest for Adjustable Rate Mortgage (ARM) varies with the change in money market conditions. This may lead to change in monthly payment or loan period as agreed between the lender and borrower.
5. FRM may be subjected to revision in long term depending on the condition of loan. But at any given time rate of interest for FRM is higher than ARM. Borrowers, who prefer security, choose to pay for this for avoiding future spikes of interest rates with ARM.