Category: Private Mortgage

10 factors that can affect your mortgage interest rate

Who doesn’t want to get a mortgage at a low-interest rate? One of the biggest investments in your life is buying a property. If you can buy it by paying less interest, then nothing can be better. Most people think that the lender determines the interest rate of your mortgage. But the truth is that you can control the interest rate too. Saving a fraction of interest can lead to saving thousands of dollars in the end. So, you should shop around before getting a mortgage. You should know about your loan choices. The interest rates on mortgages are not standardized everywhere. The rate varies from one lender to another. There are many factors that affect the mortgage interest rates. These are discussed below.

Credit score

A credit score is one of the most important factors that affect your mortgage interest rate. When evaluating your credit score, the lenders consider your payment history, your credit utilization ratio,   length of credit history, credit account mix, etc. The reason to check all these is that the lender wants to make sure that you are someone who will be able to pay back the mortgage amount. They will provide mortgage at a low interest rate to those with high credit score. So, before you apply for a mortgage, you should study your credit report thoroughly and see how you can improve the score.

Loan term

If you have a shorter loan term then it is possible that your mortgage interest rate will be lower. For example, if you apply for a 30-year loan, then your interest rate will be higher compared to that of a 15-year loan term. So, shorter loan term means you will have to pay less amount overall.

Fixed rate vs adjustable rate

There are two types of interest rates to choose from: fixed and adjustable. If you have a fixed rate then you will pay the loan at that rate for the entire loan term. But adjustable mortgage rates offer lower interest rate than the fixed rate for three, five or seven years. After that, they adjust the rate and charge higher. The adjustable mortgage rate is risky if the interest rates increase during the early periods when you are actually supposed to have lower interest rates.

Type of property

The mortgage interest rate depends on the type of property you are buying. There are risks associated with buying some properties. For example, properties that you buy as second homes have high interest rates. Single-family homes have the lowest interest rates.

Loan amounts

The amount of loan you are applying for may affect your mortgage rate. For example, if your loan amount is low, the lender will provide high interest rate so that he can make a decent profit on this small loan amount. Similarly, if you apply for a large loan amount, the deal becomes risky so the lender will charge more. Generally, in the U.S, if your loan is under $100,000 or over $417,000, you will be charged a higher interest rate. So, when you are shopping for homes, you should check the price range before applying for a mortgage.

Expected down payment

The amount of down payment can significantly affect your mortgage interest rate. If you make more down payment, then your interest rate will be lower. So, for example, a 20% down payment will ensure a lower mortgage interest rate. However, it varies from one lender to another. Some lenders may be willing to give you a low mortgage rate even at a 5% or 10% down payment.

Loan type

There are different types of loans available besides bank loans, like FHA and VA loans. The FHA loan (which stands for Federal Housing Administration) offers loan at 3.5% down payments. The interest rates they offer is also very low compared to the conventional loans. But with these loans, you will need to buy private mortgage insurance. This insurance protects the lender from any kind of default. So, this is something extra that you need to pay every month along with your mortgage payment.

Location of property

The mortgage interest rates depend on the location of the property you are willing to buy. If your property is located in a healthy housing market, your interest rate will be lower. But if you are buying a house in rural areas (where properties are very cheap) or near water (where properties are very expensive) then your interest rate will be high.

Points

Mortgage interest rates are offered with different ‘points’.  These points can decrease your interest rate if you pay some upfront fee. Getting one point means deducting one percent of interest. If you pay points at closing, then your lender will offer you a lower interest rate.

Monetary policy

The Federal Reserve’s monetary policy can affect your interest rate. When the Federal Reserve increases the money supply, the federal fund’s rate gets lower, so the interest rates decrease. If the money supply is tightened, the interest rate will be higher.

All these factors just discussed affect your mortgage interest rate. The rate is mainly based on how risky it is to give money to the borrower. It also depends on the competition; for example, if the lender wants more borrowers, he will lower the interest rates. You should shop around before deciding to apply for a mortgage. Try to get quotes from as many lenders as possible and see how you can negotiate a lower interest rate.



Finding Private Mortgage Financiers Who Will Help Arrange a New Home Loan

By having a private mortgage, you do not borrow money from a bank as an alternative you borrow from another business or person. It is also worth educating how these private mortgage financiers will work. When you assess where and how to borrow money have a picture, usually the aim is to make a win win situation where both gains financially without any greater amount of risk.

What Everyone Ought to Know About Private Mortgages

Know the risk:

Life is whole of surprises and private mortgage can go bad. These deals always seem as a good notion when they primarily come to mind. It is good to look some of the questions prior you look for like how will the personal bonding between borrower and lender alter? Will the lenders monetary security be affected particularly if any happens? Who are other members may suffer if the mortgage loan is not repaid? Whether a private or a traditional lender, is often taking a risk.Neglecting relationship problems, the process can go to the bad situation if you do not think is the new house is in the good condition, will the house be necessarily insured and cared for? And are there other mortgages, liens or interests fighting with the private mortgage financer’s interest.

Agreements:

Any mortgage must be documented well. A loan contract can take care of documentation process and so you will get everything in writing. When you avail a written contract, people’s expectations are mentioned, hence there are some surprises. After many years you may not remember what you talked about but a document contains lot better memory. It keeps the relationship unbroken. It guards the parties to private mortgage. It is also good to prevent any legal problems in the future days. A written agreement may create the deal effective from a tax pint of view. When you check the contract, ensure the conceivable deal is mentioned, beginning with the days of payments due, consequences if payments are not obtained, where and how the payments be made, whether the loan is secured with any collateral etc.

Protecting the loan:

Always good to protect the lenders interest even if you made a private mortgage among your friends. The lender can take the house and receive the money back if there is a worst condition. A borrower may die or sued suddenly. If the house is held in the name of the borrower, without a property lien filed, creditors can take the home or put pressure to the borrower to use the value of the home to fulfill debt. A secured mortgage assists protect the interest of the lenders thinking everything is documented perfectly. Actually the word mortgage technically called security and not a loan. Mortgaging a loan with property may assist you save amount on taxes. It is important to discuss with the tax prepare or CPA to get more information about this.

Make a private mortgage properly:

You want to consider about unpleasant probabilities when looking a private mortgage. For documentation, deal with the qualified professionals. Discuss with the local lawyers, tax prepare and other people who can assist direct you by the process. Ask about the services like can payments be dealt and automated, will you receive the agreements, will the payments be reported to authorities like credit bureaus.