Sunday, May 3, 2009

Mortgage Rates – Lower The Rates, Better The Mortgage

It is common practice to apply for a mortgage loan when buying a property; in which a lien on the property is given to the lender as collateral for the loan. Though a property with good value can guarantee you a good mortgage loan, the rate (interest rate) applied on the loan is often dependent on various other factors like your credit ratings, personal assurance, etc.

Mortgage rates also vary depending on the type of loan and the duration of the loan. There are basically three types of mortgage rates:

# Adjustable Rate Mortgage
# Fixed Interest Rate
# Variable Interest Rate

Adjustable Rate Mortgage:

On the basis of an index, the mortgage interest rates of an adjustable rate mortgage are adjusted from time to time. When there is a downward fluctuation in the interest rates, it can be beneficial to get adjustable Mortgage rates.

Fixed Mortgage Rates:

In the case of 'fixed mortgage rates', the monthly payments and the principal as well as the interest rate do not change throughout the entire tenure of the loan. As long as the borrower is in a fixed rate mortgage, the interest rate remains the same. The advantages of this type of mortgage rate are that a record of the exact amount of payments can be kept by the borrower; and an increase in market interest rates will not affect the borrower’s payments.

Variable Interest Rates:

Being better for higher risk threshold customers, mortgage hunters have been showing a higher interest in this type of mortgage. This type of mortgage requires the bank rate to be stable and when you have this mortgage, you have to hope that it remains stable. Variable rate mortgages can save you a lot in interest, but your payments would vary according to the market.

Factors affecting mortgage rates

Major factors affecting mortgage rates include:
• Income of mortgage borrower
• Credit scores
• Total mortgage loan amount versus value of home
• Consideration of closing costs
• Whether or not the mortgage rate is adjustable
• Amount of down payment on mortgage
• Life of mortgage loan

You need to know the mortgage type that fits your lifestyle and your financial needs the best. By choosing the right kind of mortgage loan, you can actually save thousands.

By: Dimitri Angelakopoulos

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