All About Mortgage Interest Rates

The average homebuyer will finance their purchase with a home mortgage loan. While such a loan can make homeownership possible, some loans obligate borrowers to high interest rates. This can mean that a homeowner will need to pay back significantly more to the cooperating lender over the life of a loan.

As a homeowner will need to make monthly payments that include the principal and interest on a loan, it is helpful to know how to get the most affordable mortgage interest rates available. Many looking to take out a conventional home loan from a lender will find it beneficial to get clarity on mortgage interest rates in general and the factors that can influence them.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.

What Is a Mortgage Interest Rate?

The amount of interest to be paid on a mortgage loan is the mortgage rate or Annual Percentage Rate (APR). Rates can depend on the length of time one has decided to pay back the loan, such as 3.91 percent for a 15-year fixed loan or 4.39 percent for a 30-year fixed loan. This is not the only factor to issue a mortgage interest rate. The type of loan matters as well. Mortgage rates can be fixed, staying the same for the life of the loan, or may vary, as with an adjustable-rate mortgage loan.

Potential borrowers should feel empowered to shop around. Mortgage rates can differ by lender and a borrower who can get approved for the lowest comparable mortgage rate can pocket thousands of dollars while still paying back their entire mortgage loan. A percentage point or two can make a big difference for the average borrower. The mortgage interest rate should be one of the most important considerations for those financing a home purchase with a mortgage loan.

How Is Mortgage Interest Rate Determined?

There are factors that a borrower has control over that will serve to influence a lender's decision. Mortgage rates will be assessed based on the size of the loan and the credit score of the applicant. Those with high credit scores are believed to be more inclined to repay the mortgage loan. In response, the lender will offer a lower mortgage rate. It is possible for potential borrowers to get a free copy of their credit report. Addressing inaccuracies and paying down debt can make for a higher credit score and better mortgage loan terms.

Borrowers may default on a loan, creating risk for a lender. Borrowers who appear to fall into a high risk category are often offered higher mortgage rates. In this way a lender can quickly recoup the initial amount of a loan, creating more security for the lender and protecting their investment.

When Is a Good Time to Apply for a Mortgage Loan?

There are indicators that can make it more challenging for an applicant to find and be approved for a mortgage loan with a low mortgage interest rate. Individuals can observe how the prime rate changes. This rate shows the lowest average rate banks are willing to offer for credit. This prime rate may also be used as the prime rate for those borrowers with the best credit scores.

The 10-year Treasury bond yield is another way to know more about the market. Expect mortgage rates to increase when the bond yield rises. Potential borrowers may want to follow the changes in the prime rate and bond yield to decide when to apply for a mortgage loan for better rates.

Is It Possible to Benefit from a Tax Deduction?

Once closing on a new Soldotna home, new homeowners have come to appreciate that mortgage interest is tax-deductible. Laws may have changed and certain caps may now be applied, however mortgage interest has long been one of the itemized deductions allowed for taxpayers. Deductions from mortgage interest have been taken on first or second home purchases, as well as rental or investment properties. A homeowner may be able to deduct the entire amount of mortgage interest paid when meeting specific criteria.

What Happens When Stretching Out Mortgage Payments?

Those interested in paying less every month toward their mortgage may want to lengthen the life of a loan. This can potentially reduce the amount of each payment but a borrower would generally be paying back more in interest to the lender. Approved borrowers may want to learn more about terms for refinancing a mortgage loan from their lender.

More to Learn

Potential borrowers may want to explore various loan options, as well as offers from multiple lenders. Banks and lenders may approve an applicant for a fixed rate or an adjustable rate loan. Having a predetermined mortgage interest rate for the life of the loan in a fixed rate loan may help those budgeting their finances. Individuals who do not qualify for a conventional loan may want to explore the terms, rates and conditions of FHA loans and VA loans.

For informational purposes only. Always consult with a licensed mortgage professional before proceeding with any real estate transaction.