If you have an interest in learning about mortgage interest rates, you’re in the right place. When it comes to purchasing a home, locking in your rate is one of the most important steps you will need to take. This process is a major factor in determining how much you will end up paying for your home, once all is said and done. For those reasons, acquainting yourself with some basic interest rate info can help you choose a path that best suits your personal finances and future plans.

Lenders offer a variety of different loans to ensure that every homebuyer can find a plan that works best for their specific situation. Determining which kind of loan will work best for you depends on factors such as your income, projected career growth, savings, spending habits, family planning, and the possibility that you will move in the coming years.

The Lifespan of a Loan

The amount of time for a homebuyer to pay back their loan + interest to their lender is often set at 30 years. As long as the buyer is purchasing a home within their price range, a 30-year loan should typically allow the buyer to comfortably afford the monthly mortgage payments, while also having more than enough left over for all other expenses.

Depending on the lender and the homebuyer’s finances and credit score, 20-, 15-, and 10-year loans may also be available options. While the monthly mortgage bill will be higher with these shorter-term loans, the attached interest rate should also be a smaller percentage, and this often saves the buyer money in the long-run. For instance, you may have the option of locking in a 5% interest rate on a 30-year mortgage, but a 20-year mortgage might offer a 4% interest rate.

Fixed-Rate & Adjustable Rate

The two main types of loans are fixed and adjustable. If you have a fixed-rate loan, you will maintain the same interest rate until your mortgage is paid off, which means you will be paying the same amount on your loan every month. What changes with each payment is the percentage of that monthly payment that goes toward paying off the interest of your home compared to how much goes into paying off the original amount that you borrowed (your principal). At first, a higher percentage of each payment will be paying off the interest, but as the years go on, your payments will shift to paying more for the principal and less toward the remaining interest. With an adjustable-rate mortgage, your interest rate starts lower than the market rate but will change a few years into paying off your loan. Depending on the state of the market, you could end up paying more or less interest from that point on.

Your interest rate and your APR are two important home-buying terms to know, and are often incorrectly interchanged. Your interest rate only incorporates the percentage of interest you will pay on your principal. An APR includes the interest on your principal, but it also factors in closing costs (one-time fees paid when you signed for your home) and the cost of your mortgage insurance. While the APR will be slightly higher than your interest rate, the good news is that the APR does not correlate to your monthly mortgage payments, since it includes payments that have already been made by the buyer or the seller.

Over the last year and a half, interest rates have been dramatically dropping. For home buyers, this means that if you purchase a house before the rates increase, you can potentially end up saving thousands or tens of thousands of dollars by the time your mortgage is paid off!

Are you looking to lock in your interest rate while rates are at an all-time national low? Click here to contact Trumark Homes’ expert Sales Team today and discover your dream home.