The type of mortgage you decide to obtain can greatly affect the interest rate you are given. That’s right, your credit score isn’t the only factor determining your interest rate. Assuming you have perfect credit, rates can vary by an entire percent between a 15, 30, or 40-year mortgage, and the rates can differ even more between adjustable rate mortgages and interest only loans. There may also be differences in mortgage refinance rates.
It is always important before shopping for a home loan to carefully evaluate your credit report and make sure there are no errors. Your credit rating will impact not only a home loan interest rate, but also any other loan rate you will ever try to obtain. After ensuring your credit report is accurate and your credit score is as high as possible, the next step is to evaluate what type of mortgage loan is best for you, as well as current home loan rates and what the best mortgage rate is for you.
The current national average for a 30-year mortgage rate is nearly six percent. A 15-year home mortgage is nearly a full half point lower at approximately 5.58 percent. What does a one-year adjustable rate mortgage look like? It falls in between the two at approximately 5.75 percent. So what does this mean? Over the course of your loan, it could mean thousands of dollars in interest and a difference of as little as $100 a month to $1,500 a month.
Before deciding on what type of mortgage is best for you, carefully evaluate the different home loan interest rates associated with different types of mortgages. What makes the most sense for your personal financial situation? For some, it may be an adjustable rate mortgage for a few years with plans to refinance to a fixed rate loan. Some may have larger monthly income or are in a different financial situation and want to have their mortgage paid off more quickly than the typical 30 years, so they opt for a 15-year mortgage.
If you are looking to refinance your home, those rates may be totally different than the current home loan rate you are paying. Over time, interest rates can fluctuate dramatically, as well as your credit score. If you are looking to refinance, make sure the difference in interest rates is low enough to offset the costs of refinance, such as closing costs. Usually refinance rates mirror those of new home loan rates, so it is likely that current rates will be lower than the rate you originally financed.
Shopping for a mortgage can be a confusing process. There are many different factors and elements of each home mortgage type that can affect the home loan interest rate drastically, resulting in a much different monthly payment, as well as the total amount of interest you will pay over the life of your loan. It is vital for you to evaluate not only your credit score, but also how much you can afford and what type of loan will be the best fit for you personally. Buying a home is one of the largest investments you are likely to make. Evaluating your monthly expenses to determine the amount you can afford to pay for your loan and then choosing the right kind of loan for your budget can save you a great deal of money.
If you are confident in refinancing, saving money on the front end may mean an ARM mortgage is the best fit for you. For others, paying off a home loan quickly is more appealing and a 15-year mortgage, with the lowest interest rate is better. For others, a standard 30-year mortgage rate makes the most sense. Whatever loan you choose, it’s important to research all angles to find the best mortgage rate for you.
NOTE: The interest rates mentioned in this article were obtained from msnmoney.com and cnn.com.