The mortgage Interest rate is the set percentage that is added to the principle of a mortgage loan. Principle and interest together make up your monthly payment. Most Interest rates are determined by a person’s FICO score. The better your FICO score the better interest rate one will receive. There are fixed and variable interest rate home loans. Interest rates can be negotiated by the borrower and one should always shop around to find the best interest rate.
Fixed vs Variable Interest Rate
A fixed rate mortgage is a mortgage where the interest remains fixed or the same throughout the term of the loan. A variable rate mortgage is a mortgage whose interest rate rises or falls according to the market. Each loan has its own benefits and disadvantages. For example with a fixed rate mortgage your interest rate and payments stay the same throughout the loan which can help a person plan better when making payments. Some disadvantages to this are many times with these loans you get penalized for breaking the terms or pre-paying off the loan. With a variable rate mortgage a person can either save a lot of money or end up paying to much but historically people with variable rate mortgages have paid less. With the variable rate mortgages penalties are usually not as stiff as a fixed rate. The biggest disadvantages with a variable rate are the fluctuating rate. It is hard for some people to adjust to different payments. Depending on your situation both loans can be beneficial. Before making a decision study the difference of the interest rates and mortgage terms then make sure to consult with a mortgage professional and go over the benefits and disadvantages of each loan in full.