When it comes to buying a home, there are many costs to consider. It’s not just a down-payment and a monthly mortgage, and voila, all costs are covered. From closing costs to fees and interest rates, there are many things you’ll want to think about when you’re planning to buy your new home.
A specific aspect of home buying that may have you confused is the mortgage interest rate. What will this mean for your monthly payment and what do you need to consider before purchasing your home? Consider these 5 things you should know about mortgage interest rates, as you set out to shop for a home:
- It’s an additional payment to your monthly mortgage payment.
As you look into federal reserve mortgage interest rates and check out loans, don’t forget that interest rates will add to the monthly payment you’ll be making towards your mortgage. It’s important to calculate these rates before buying your home. so you know exactly what you’ll be spending. It’s easy to only take the mortgage payments into account when planning for your monthly budget, rather than other expenses, such as hiring a contractor to make repairs or furnishing a brand new home.
- Know what can lower your interest rate.
One mistake that people make when buying a home is that they don’t do research to find that there are ways to lower your interest rate. You can plan for a shorter loan tenure by cutting down the years you’ll spend paying your mortgage. This means that instead of planning to pay over the course of 20 to 30 years, you’ll plan to pay within 10-15. Prepayments are also helpful, as is paying a higher down-payment.
- Shopping around can get you a lower interest rate.
For those who are shopping for a home, it can be tempting to go for the first mortgage offer they get without shopping around. If there’s something you should take your time on, it’s mortgage lending. Interest rates can result in higher costs than you ever expected, so if you’re not satisfied with what you’re offered on the first go-around, keep looking. And if you’re having trouble finding a suitable interest rate, you can work with your realtor, as they often have connections to those in the industry.
- Take a look at the different interest rates.
From a fixed to adjustable-rate mortgage, it’s important to understand what kind of mortgage rate you’re getting. A fixed-rate mortgage rate helps to make things easy by allowing the payment to stay the same throughout the years you need to pay for it. While you’ll need to pay more towards principal eventually, it helps to know what you’re spending on a monthly basis. ARMs usually begin with a lower rate, which is helpful for those who are buying a home while building their career. Eventually, there may be increases with ARMs, but they’ll have a cap on them, so they won’t continue to increase indefinitely.
- Your financial status will affect your rates.
It’s important to know that your financial stability could impact how high your mortgage interest rates will be. This is a particularly important point to consider before applying for a mortgage, as if you want to get the best outcome, as well as be able to buy the home you want, it’s wise to make sure your finances are in order. From savings to a high income and a great credit score, if you haven’t started working toward these things, start today.
The best thing you can do when looking for a home is to research and if possible, speak with a professional so that you can make sure you understand everything about the process. Understanding mortgage interest rates and shopping around for the right one-even though it’s time consuming-will help you make a financial decision that won’t stress you out for years to come.
Image Credits: Kindel Media, Paul Brennan
Like this article? Share with your friends!