What Level of Interest Rate Will You Expect to Get for Your Mortgage?
by Joelle J. Cintron
Once you begin considering buying a home, the first thing you may be concerned about about is how good a rate you will get.
And once you know how those rates are determined, is there something you can do to get the best rate for your homeloan?
The first and foremost determinant of the interest rate on a loan is the credit standing of the borrower. You may have observed internet advertisements about credit ratings, or heard discussions about a credit score, often known as a FICO score.
A FICO score is a rating that credit agencies such as Equifax put on any person who requests credit. Banks all use the services of these credit rating agencies to find out the probable risk of lending to a borrower and the criteria the agencies use are history of payments, exposure to debt, income, job history, etc.
An important consideration also is the size of the deposit on the house.
The more you deposit, the better the mortgage rate, since the bank’s risk exposure is reduced as the amount of the loan in reduced.
So a higher down payment will result in a lower rate. The problems most home buyers have, however, is deciding between saving the deposit and continuing to pay rent. The longer you pay rent, the longer you can wait and put funds aside for the down payment, but couldn’t rent money just as well be a mortgage payment?
The maturity of the mortgage is also an important component in the determination of the interest rate of the loan alberta mortgage. When lenders commit money for longer periods, they have to build a cushion into the rate.
Therefore, if you take a shorter term mortgage such as a five or ten year maturity, you will get a better rate than you would for a 25 or 30 year mortgage. Despite this fact, many people prefer a longer, fixed term mortgage because they always feel that the rates over time will go higher and the loan will cost more in the long run.
This is one of the other important factors in what determines interest rates: What the general market is doing. Since banks have to borrow on other markets in order to lend mortgage money, the cost of their money goes up and down edmonton mortgage brokers. Complex economic gauges are at the bottom of the changes in interest rates.
Most people would rather take a chance on a fixed rate that can’t increase, than a rate that changes periodically. Even if rates go down, they feel the risk is better to have a locked in rate than a changing rate.
The last factor that can influence the rate on your loan is the size of the loan itself. Banks are limited as to the size of their loan portfolio, and if your mortgage is sizeable, they will be adding a lot of risk to their portfolio and will expect a higher return for that higher risk.
Blogging