Home Mortgage Rate Factors

The amount of your loan may affect your interest rates due to the conforming loan limits established by Fannie Mae and Freddie Mac at the beginning of each year. If the amount financed exceeds the conforming loan limits that have been established for the year, interest rates can increase.

Shorter loans can save you thousands of dollars in interest payments over the life of the loan, but will raise the cost of your monthly payments. An adjustable rate mortgage may initially give you a lower rate than a fixed interest mortgage, but your payments are subject to increase as soon as the interest rate changes.

The size of your down payment can also affect interest rates. Large down payments, usually those that are greater than 20 percent, will get you the best available rates. Smaller down payments of 5 percent or less will bring higher rates as you are offering less equity as collateral. If you have money on-hand when you apply for your loan and would like to lower your interest rate, it is a good idea to put more money down. The concept is simple: In exchange for more money (collateral) upfront, lenders are willing to lower the interest rate they charge, since there is less risk involved for them. This subsequently reduces your monthly payments.

Closing costs are fees paid by the lender. If you don’t want to pay all of the closing costs, expect a higher rate which will pay the lender additional interest over the life of the loan.

Your credit quality and income level will also affect your interest rates because they determine your FICO Score, which is used when calculating loan terms. If you have excellent credit and your income surpasses the amount of debt you owe, you will receive lower rates. However, if your monthly income is insufficient to meet minimum debt obligations, you will receive a higher interest rate, even if you have a credit report.

 

Mortgage Definitions

Fixed rate mortgage: A fixed rate mortgage has the same interest rate and monthly payment throughout the term of the mortgage. The payment is calculated to pay off the mortgage balance at the end of the term. The most common terms are 15 years and 30 years.
Fully-amortizing ARM: This is the most common type of adjustable-rate mortgage. The monthly payment is calculated to pay off the entire mortgage balance at the end of the term. The term is typically 30 years. After any fixed interest rate period has passed, the interest rate and payment adjusts annually. A fully-amortizing ARM will also have a maximum rate that it will not exceed. This calculator uses a maximum interest rate of 12%. Below is a list of the most common types of fully-amortizing ARMs.

Interest-only ARM: An interest-only ARM only requires monthly interest payments. Because you are not paying any principal, as you are with the other two types of mortgages described above, this can lower your monthly payment. However, because your mortgage's principal balance is not decreased, you will have a balloon payment at the end of the mortgage's term. Like a fully-amortizing ARM, an interest only ARM will often have a period where the interest rate is fixed, and then it is adjusted annually. An interest only ARM will also have a maximum interest rate that it will not exceed. This calculator uses a maximum interest rate of 12%.
Mortgage amount: Expected balance for your mortgage.
Term in years: The number of years over which you will repay this mortgage. The most common mortgage terms are 15 years and 30 years. Please note that for the interest-only ARM you will have a balloon payment for the entire principal balance at the end of the loan term.
Expected rate change: The annual adjustment you expect in your ARM. The range for this calculator is minus 3% to plus 3%. Use a negative value if you believe interest rates will decrease, a positive value if you believe they will increase.
Interest rate: Annual interest rate for each mortgage type. Typically an ARM will have a lower interest rate than a fixed-rate mortgage. The rate of an interest only ARM will vary by lender.
Months rate fixed: This is the number of months the rate is fixed for an ARM. During this period the interest rate and the monthly payment will remain fixed. The rate will then adjust annually by the expected rate change.
Interest rate cap: This is the maximum interest rate for this mortgage. The mortgage's interest rate will never exceed the interest rate cap.
Monthly payment: Monthly principal and interest payment, or PI, for the fixed-rate mortgage and the fully-amortizing ARM. This is an interest-only payment for an interest-only ARM.

Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.

Prudential Texas Properties
H Group Dallas & H Group CC Lake

(214) 659-3624

www.hgrouphomes.com
www.cclakehomes.com
 

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