The Truth about Mortgage Rates
Understanding Mortgage Rate
What is interest?
When you apply for a mortgage, various lenders will offer options with different interest rates (depending on what you qualify for). Whenever you renew or refinance your mortgage, you’ll have an opportunity to renegotiate these rates.
How are mortgage rates calculated?
Lenders typically base their mortgage rates on the following factors:
- How long your mortgage term is
- The lender’s posted interest rate (i.e. the rate they advertise publicly)
- The lender’s prime rate (which they use to set their posted rate)
- Whether you’re eligible for a discounted rate
- Whether you choose a fixed-rate, variable-rate, or hybrid mortgage
- Your credit and employment history
- How much you have for the down payment
What will my rate be?
Will my rate be the same in 6 months (& how long can I lock in my rate)?
Fixed mortgages remain the same for your entire term. They tend to have higher rates, but since those rates don’t change, you won’t have to worry about them going up if prime rates rise. This also helps you predict when you’ll be able to pay off your mortgage more accurately.
Variable interest mortgages have rates that change depending on market conditions. They are often less expensive at the front end—and if market rates go down, they can help you save a significant amount of time or money paying off your mortgage. However, you may end up paying more if market rates end up climbing, and changes in interest rates are often unpredictable.
Some lenders provide the option to convert to a fixed interest rate during your term. For more advice on how to leverage these features, contact me to discuss your options.