Information On Mortgage Interest Rate
Mortgage interest rate is the rate at which the interest is paid to the lender that holds the mortgage
. The mortgagee pays an equated monthly installment towards the mortgage. The amount thus paid has two components- the interest and the principal. The principal is the amount that is availed as the actual loan amount. The interest is the amount that the lender charges the borrower and is calculated based upon the previously agreed upon rate at which the loan was availed. Hence, there is a part of the principal amount that gets paid with every monthly payment. In the first five to ten years, it would usually seem that the principal doesnt reduce as more than half of the installment paid can go towards the interest. However, larger amounts get credited towards the principal as the mortgage amortizes. The reason behind this in-equal assignment of the installment paid towards the principal and interest can be that the amount of interest is lowered as the principal amount is lowered. At the time of mortgaging, the mortgagee is provided with a document named the amortization schedule. This document clearly states the principal amount of loan availed, the rate of interest, the equated monthly installments at the agreed rate of interest and the specific amounts credited towards the interest and principal with each monthly payment. The
mortgage interest rateoffered is calculated based on the borrowers credit rating. It can be advantageous to clear up the credit rating before availing a loan. Usually the mortgage interest contributes towards tax deductions, sometimes up to 100% in many cases. However, sometimes second mortgage interest and equity loan interest may also be considered for tax deductions. As per taxation rules, every tax year the mortgage company must provide a year-end statement to the mortgagee where the amount paid towards the interest on mortgage is clearly mentioned. It is advisable to consult a tax advisor regarding tax deductions on mortgage interest if the mortgage is not of primary residence.
Mortgage interest rate calculatorcan be used to determine whether the proposed house would be affordable or not. A mortgage interest rate calculator can be useful in finding the likely monthly installments payable for the user inputs of rate of interest, total loan amount and the time period of the loan. It may be prudent to first find out the different kinds of loans, interest rates and schemes available before making a decision. The mortgage interest rate calculator can be used to compare various loans on offer by mortgage companies. This can be helpful while shopping for the home as the prospective borrower would have a fair idea as to whether or not a particular home would be affordable at the current rate of interest. By inputting various scenarios in to the calculator, one can use the information to determine the price range that one can afford. A mortgage loan calculator can also come in handy to determine if the borrower makes additional payments towards the principal, what the reduction in the tenure of repayment would be. Alternatively, it can be used to know how getting a shorter term would affect the payments. The mortgage interest rate calculator can be used to choose between two equally attractive loan offers as even a slight change in the parameters input may result in a major difference in the payments or the total amount paid over the complete tenure of the loan.
Mortgage interest rates are broadly classified into two fixed interest rates and floating/variable interest rates. Fixed interest rates as the name suggests has a certain rate of interest over the complete life time of the loan availed. For example if Mr. Robert Smith availed a $200,000 loan for a period of 30 years at 5% rate of interest fixed, then irrespective of the changes in the prevailing interest rates in the market, Mr. Smith would continue paying at the rate of 5% throughout the tenure of 30 years. Whereas, if Mr. Smith availed the same amount of $200,000 for 30 years tenure at 3% variable rate of interest, then when the rate of interest offered by the mortgage company goes up, Mr. Smith would have to pay a higher rate of interest resulting in lower remittance towards the principal. These days, there are many mortgage companies that offer a combination of both these types of loans. The loan offered could be variable in the first few years and then could be fixed for the remaining tenure or it could be fixed for the first few years and variable thereafter. It may be in the interest of the mortgagee to read the offer document carefully and to bargain to get the lowest possible interest rate.
by: Ask Bill
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