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.
