This article is about Mortgage Rates Affect You. Interest rate is the most important and determining factor when choosing the right kind of mortgage. The rate of interest changes on a daily basis so you ought to be cautious when applying for a mortgage, for it has several far reaching implications. It is a personal responsibility to save and invest hence settling for a low interest rate on a mortgage will determine future savings and liquidity.
Interest rate features as an important factor, because even when applying for a credit card or buying a new car – it does determine the cash outflow on a monthly basis or during the term of the loan. At the time of writing, mortgage rates are low and it is a good time to buy a home, or refinance an existing mortgage at a lower rate of interest.
Interest rate is defined as the cost of borrowing a certain sum of money, from either a bank or lender, for a fixed duration. It is not possible to forecast the mortgage rate of interest for a given date or day, because it is influenced by the economic factors of supply and demand on a daily basis.
Hence, if the demand is for buying houses, it means that more money is being borrowed, therefore making lenders charge higher rates to borrow money. It is the opposite in the case of a slow economy where less people borrow money, and rates are generally lower in order to attract customers, with the availability of more funds.
Mortgage interest rate affects an individual on a short term and long term basis. A low rate of interest means that monthly payments are lower; it also means that over the term of the mortgage, the individual is paying less.
Traditionally, you would take a mortgage for a longer duration of 30 years to pay less on a monthly basis, but in reality, you end up paying much more in terms of interest payment. If the rate of interest is low, then it makes sense to take the mortgage for a shorter duration of 20 or 15 years whereby the principal is more and less in interest component. It means that the mortgage would complete soon, and you could get home ownership at the earliest – a big advantage.
When it comes to choosing a mortgage, aspiring homeowners have 2 options- a Fixed Rate mortgage or an Adjustable Rate mortgage. A ‘Fixed Rate’ option is always safer and stable as it is not affected by the change in rates of interest.
Nearly 70% to 80% of homebuyers prefer Fixed Rate mortgage rather than settle for Adjustable Mortgage rate of interest. So, if an increase in interest rates does affect a home aspirant financially or if one is just the cautious type who cannot afford risk factors, then Adjustable Rate of interest is not a good idea.
Hence, it is important to research and plan for the best possible rate of interest as it can save you from unforeseen financial risks.