Determining Mortgage Rates
Mortgage rates are the rates at which the banks lend money to their customers to buy houses and property
. They determine their
mortgage rates based on the rate at which they are able to lend money. In terms of the
mortgage rates charged by the major mortgage companies, there are mainly two types; the Fixed Rate Mortgage (FRM) and the Adjusted Rate Mortgage (ARM). The FRM rates on mortgages remain the same over the term of the debt, which, with interest, rates a bit higher than 30 year treasury bonds at the time the mortgage is issued. ARMs generally start with lower mortgage rates in order to accommodate future risks out of interest rate fluctuations. ARM is structured so as to follow market rates with a maximum ceiling rate which cannot be exceeded. Mortgage rates can also be Prime in nature. Prime rates are the lowest interest rates offered by mortgage companies to their most credit-worthy borrowers. It is not similar to long-term mortgage rates although it may influence them.
Mortgage interest rate can be defined as interest rate on mortgaged properties generally advanced to secure a loan. Mortgage interest rates are determined by various factors such as the credit worthiness of the borrower, the tenure of the mortgage loan, the nature of the loan, the loan amount and the purpose of the mortgage loan. When it comes to mortgage rates, there are many variables like amount financed, interest rate, and loan term. All of this information together will be calculated to determine your monthly payment. Now the need for a mortgage interest rate calculator arises! A mortgage calculator is an excellent way to create and manipulate your budget to see if you can afford to buy a home. It inputs the numbers you give it into a simple mathematical formula that is programmed into its code. Using a mortgage calculator doesn't require you to be an expert. As you can just key-in all the information about your mortgage and the amount you want to convert. The mortgage calculator will then calculate for you the amount you will be able to borrow. With all the variables entered you can easily calculate your mortgage! You may try changing some of the variables to see how it impacts your monthly payment and time required to pay-off your mortgage.
One of the first choices you will have to make for a basic mortgage is whether you want a fixed interest rate or an adjustable rate that changes. The reasons for choosing either one of these will depend on the buyer and his long-term plans for the house. Variable-rate mortgages which are also known as adjustable-rate mortgages or floating-rate mortgages, offer rates that can be changed, adjusted or that fluctuate. In other words, an
Adjustable Mortgage Rate (ARM) on home loans is variable. These loans normally come with a fixed-interest period (usually between one and five years) after which the mortgage rate can adjust, thereby changing the mortgage payment. An ARM has a limit in the interest that can be charged. This is called a rate cap. Typically an ARM will have two rate caps. One rate cap limits how much interest can be raised at one time, and the other rate cap limits the amount of interest that can be raised during the life of the loan. Normally, the interest rate used in an ARM is tied to the fluctuation of the economic indicator or index and most indexes are tied to the United States Treasury securities.
by: Ask Bill
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