Dear Home Buyer, Your Mortgage Payment Vs Your Friend's Mortgage Payment
Monday Jun 18th, 2018
Here's The Problem:
First Time home buyers constantly question why their mortgage payment is different from their friend or family members.
Here’s The Answer
Mortgage payments are determined by a number of factors the most significant being the interest rate. As a mortgage broker I know how your interest rate gets determined, and I think you should, too. Keep reading to learn the 7 most common factors that affect your interest rate.
Your credit score is one major factor that can affect your interest rate. In general, consumers with higher credit scores receive lower interest rates than consumers with lower credit scores.
Lenders use your credit scores to predict how reliable you’ll be in paying your mortgage loan. Credit scores are calculated based on the information in your credit report, which shows information about your credit history, including your loans, credit cards, and payment history.
Home price and loan amount
The amount you’ll need to borrow for your mortgage loan is the home price minus your down payment. Depending on your circumstances or mortgage loan type, your closing costs and mortgage insurance may be included in the amount of your mortgage loan, too.
Home buyers can pay higher interest rates on loans that are particularly small or large. Lenders tend to charge an add on to the interest rate when loans fall over or under certain amounts. The threshold where an add on is charged is determined per lender. In general in today’s market you can expect to pay a higher interest rate on loans that are less than $150,000.
If you’ve already started shopping for homes, you may have an idea of the price range of the home you hope to buy. If you’re just getting started, you can use the home search tool at The Blisss Life Agency to shop for a home or get a sense of typical prices in the neighborhoods you’re interested in.
Many lenders offer slightly different interest rates depending on what state you live in.
If you are looking to buy in a rural area, your rates may differ from urban areas. Different lending institutions can offer different loan products and rates. Regardless of whether you are looking to buy in a rural or urban area, talking to a mortgage broker who works with multiple lenders will help you understand all of the options available to you.
In general, a larger down payment means a lower interest rate, because lenders see a lower level of risk when you have more stake in the property.
If you cannot make a down payment of 20 percent or more, lenders will usually require you to purchase mortgage insurance, sometimes known as private mortgage insurance (PMI) or in the case of an FHA loan MIP (Mortgage Insurance Premium).Mortgage insurance, which protects the lender in the event a borrower stops paying their loan, adds to the overall cost of your monthly mortgage loan payment.
It’s important to keep in mind the overall cost of a mortgage. The larger the down payment, the lower the overall cost to borrow. Getting a lower interest rate can save you money over time. But even if you find you’ll get a slightly lower interest rate with a down payment less than 20 percent, your total cost to borrow will likely be greater since you’ll need to make the additional monthly mortgage insurance payments. That’s why it’s important to look at your total cost to borrow, rather than just the interest rate.
Make sure you are factoring in all of the costs of your loan when you are shopping around to avoid any costly surprises. You can use our "Getting A Mortgage" page to learn more about down payments which will affect both your mortgage interest rate and the amount of interest you’ll pay over the life of the loan.
The loan term, or duration, of your loan is how long you have to repay the loan. In general, shorter term loans have lower interest rates and lower overall costs, but higher monthly payments. A lot depends on the specifics—exactly how much lower the amount you’ll pay in interest and how much higher the monthly payments could be depends on the length of the loans you're looking at as well as the interest rate.
Learn more about your loan term, and then try out different choices or Get Preapproved for a mortgage loan at Blisssliferealty.com to see how the length and rate of your loan would affect your interest costs.
Interest rate type
Interest rates come in two basic types: fixed and adjustable. Fixed interest rates don’t change over time. Adjustable rates may have an initial fixed period, after which they go up or down each period based on the market.
Your initial interest rate may be lower with an adjustable-rate loan than with a fixed rate loan, but that rate might increase significantly later on.
There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Loan types have different eligibility requirements and lenders decide which products to offer based on those requirements and your unique situation. Rates can be significantly different depending on what loan type you choose. Talking to a mortgage broker can help you better understand all of the options available to you.
Learn more about the different types of mortgage loans in our "Getting A Mortgage" page.
It’s not just one of these factors—it’s the combination—that together determine your monthly mortgage payment. Everyone’s situation is different, which is why you can speak to a local mortgage broker to see what you can expect based on your personal factors.
By understanding these factors, you’ll be well on your way to shopping for the right mortgage loan—and interest rate—for you and your situation. Not all of these factors are within your control. But understanding how your mortgage interest rate is determined will help you be more informed as you shop for a mortgage.
Use the "Getting A Mortgage" page to help you decide what’s right for you.
Good News, if your thinking of buying there are many down payment assistance programs available. To learn more about or to see what down payment assistance programs you may qualify for call us at 678-820-6642 or Click Here To Get Your Home Loan Pre-approved online or Call 678-820-6642
© 2018, Tonya Brown. All rights reserved