Understanding Current Mortgage Rates
Current mortgage rates - the basics
Lenders are constantly advertising low current mortgage rates,
but do you know the facts behind current mortgage rates? This brief
article will give you the background behind current home mortgage rates and
tips for securing the lowest current home mortgage rate, saving you thousands
of dollars in the long run.
Why are current mortgage rates important?
Two-thirds of U.S. households own their own homes (as opposed
to renting), and most homeowners pay a mortgage. Therefore, the current
home mortgage rate determines who much all of these homeowners have left to
spend on other things. How much people can spend on other things, in
turn, affects the overall economy.
Current home mortgage rates are important because mortgage interest is a major
item in many people’s budgets. Even small changes in current mortgage rates
can have a large impact on how affordable it is to own a home. That’s
important, because home ownership is the major way many families build up
wealth.
The interest payments over the life of a mortgage often add up to more than
the amount of the mortgage loan. For example, the interest payments on a
30-year, $100,000 mortgage at a 7% interest rate will add up to about $140,000
over the 30 years.
People who carry mortgages may deduct the interest they pay from their income
in calculating how much income tax they have to pay. That’s a
significant benefit of owning a home.
Current home mortgage rate and fixed-rate mortgages
The interest rate for a fixed-rate mortgage remains the same
for the life of a mortgage, and the monthly payment also stays the same for
the life of the mortgage.
For example, a 30-year, $100,000 mortgage at an interest rate of 7% requires a
monthly payment of $665.30. Every month for 360 months, the payment of
the principal plus interest equals $665.30.
The vast majority of the monthly payment in the early years of the mortgage is
for interest, and only a small amount reduces the principal, the amount of the
original loan still owed. The opposite is true in the latter years of
the mortgage.
Therefore, most of the monthly payment in the early years of the mortgage is
income-tax-deductible, but very little of the payment in the later years is
deductible. Usually, however, homeowners will find the payments more
affordable in the latter years, because incomes generally rise, and inflation
reduces the “real” burden of a fixed payment.
Finding the best current home mortgage rates
Getting the best current home mortgage rate can be achieved by
doing a little research. Here are few rules of thumb for finding the
most competitive current mortgage rates:
- Ask each lender and broker for a list of its current home mortgage
interest rates and whether the rates being quoted are the lowest for that
day or week.
- Ask whether the current home mortgage rate is fixed or adjustable.
Keep in mind that when interest rates for adjustable-rate loans go up,
generally so does the monthly payment.
- If the current home mortgage rate quoted is for an adjustable-rate loan,
ask how your rate and loan payment will vary, including whether your loan
payment will be reduced when rates go down.
- Ask about the loan’s annual percentage rate (APR). The APR takes
into account not only the current home mortgage interest rate but also
points, broker fees, and certain other credit charges that you may be
required to pay, expressed as a yearly rate.
Your current home mortgage rate has an impact on the economy
at large as well as your personal budget. It’s important to understand
current mortgage rates and negotiate the lowest current home mortgage rate
possible.
