Understanding how your mortgage rate affects your house payment can be tricky; however, some guidelines can help you understand a little better. Getting a mortgage is complicated enough without adding mathematical percentages to it. This article goes over what a mortgage rate is, the different types of interest rates available on a home loan and the benefits and downfalls of each, and what it takes to get best mortgage rates in Fort Lauderdale.
What is a Mortgage Rate?
A mortgage rate is the percentage of interest your lender charges when you buy a home. These rates fluctuate daily and can change drastically in short periods. The local and global economy, the current state of the housing market, the lender's particular regulations, and the borrower’s credit and risk assessment all play an essential role in the interest rate offered at any given time.
The Different Types of Mortgage Rates
There are typically two significant varieties of interest rates available on home loans, fixed rate mortgages or adjustable rate mortgages (also known as ARMs). These interest rate options both have merits and drawbacks. Let me explain a little about each type.
Fixed Rate Mortgages
• A Fixed Rate Mortgage is pretty true to its name. These types of interest rates are locked into place which means that your interest rate will not change or fluctuate from the day that you sign your mortgage through your very last payment on your home.
- The Benefits
- Fixed rates ensure for your monthly house payments remain similar each month.
- Set interest rates make budgeting easier.
- Regardless of rate increases for the regular market, your interest rate will not change.
• If the market changes and the rates decrease, your price is locked in, and it will not get lower if the market drops. This means that people buying their houses in the future could be getting better rates than you are paying on your home.
Adjustable Rate Mortgages
• An Adjustable Rate Mortgage is similar to a fixed rate mortgage in one way; that its name says it all. Just like the word adjustable, the interest rate for this home loan is not fixed but adjusts and fluctuates with the market. Typically, the lender and the borrower reach an agreement where the borrower can have an extraordinarily low rate for an introductory period usually lasting for 3 to 5 years and then their price is reevaluated based upon previously agreed upon terms.
• ARMs have excellent starting interest rates.
• If you are only staying in your home for 3 to 5 years, adjustable rate mortgages may be a better deal financially.
• If the mortgage rates drop in the future, once the introductory period is over you could have even lower house payments.
• If you are staying in your home longer than the initial rate, you could be facing wildly unpredictable monthly house payments.
• If you are living in the house for a shorter time than your mortgage was initially signed for you may face steep penalties for paying early.
• If the mortgage rates increase in the future and your introductory period ends, you could have steadily increasing house payments and owe unverifiable totals on your mortgage overall.
Depending on your situation, each rate type has its merits, and sometimes the benefits can outweigh the drawbacks. That is a choice that you have to make based upon your plans, your risk versus cost analysis, and your current financial circumstance.
How Mortgage Rates Affect Your Fort Lauderdale House Payment
As discussed above, if you have an adjustable mortgage rate, there is no guaranteed way to express how the interest rate will affect your actual balance owed each month. There are, however, some ways that all interest rates change your overall home loan that can be explained briefly. Simply put, the higher the interest rate, the more you will owe in the long run. However, one of the things you might not realize is that just one or two percent can make thousands of dollars’ worth of a difference in the life of your mortgage. The percentage rates for home loans seem small enough, but when you look at the large balance owed for a house with compounding interest, those percentages add up fast. The more significant the interest rate, the bigger your monthly Fort Lauderdale house payment will be by default.
Nationwide Home Loans and Your Fort Lauderdale Mortgage
Here at NHL Lending, we have some of the best mortgage rates in the Fort Lauderdale area. Our loan experts are trained to work with you to get you a great deal on the mortgage program that is right for your financial situation. Let us help you get the most affordable home loan possible today!