Interest rates have long been a part of the financial landscape. They act as a bridge between corporations and borrowers to ensure money will always be available to borrow in an emergency. One of the most popular ways this is accomplished is through credit. Accumulating interest with credit cards has been widely familiar to the general public, but what about when it comes to something as considerable as a mortgage?
How Do Interest Rates Affect a Mortgage?
High interest rates bring higher monthly payments and increase the overall interest paid over the life of the loan. A low interest rate saves money in both the short and long term. Of course, just as the stock market is unpredictable, it’s nearly impossible to time a home purchase with the best interest rates. The past five years have held some of the most affordable interest rates ever, and many market specialists predict the trend will continue.
It may prove difficult to time a home purchase with the best interest rates, but there are factors within a borrower’s control to get a lower rate. For example, a benefit of the 15 Year, fixed mortgage is that it has a lower interest rate than a 30 Year, fixed mortgage. Sometimes a bigger down payment can also aid in getting a better interest rate.
It is important to note that the money paid in interest does not go toward paying off the principal balance of the home. That’s why it’s ideal to get a low interest rate and pay off the house as quickly as possible.
How Are Interest Rates Locked?
Because mortgage interest rates can change from day to day, locking a rate is an important part of the mortgage process. Locking an interest rate guarantees a certain interest rate for a specific period of time; in California this is usually 30 days.
In most cases, the interest rate can be locked as soon as a borrower’s initial loan is approved. However, most buyers wait until they have found a specific home to purchase and are officially under contract for it.
Mortgage interest rates fluctuate greatly and there is no way to time it perfectly. It is recommended to rely on the lender’s expertise – if they say it’s a good time to lock down your rate, trust them.
Some lenders charge a fee to lock an interest rate. When shopping for a lender, it’s important to ask questions on the front end so there aren’t any surprises throughout the loan process.
If you have any questions regarding your goals for home ownership or current market interest rates, give us a call at (760) 930-0569 and one of our loan officers will be happy to assist you.