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You’ve probably heard the term “mortgage rates” before. News articles and advertisements love to talk about rates, rates, rates! But what exactly are they, and what do they mean for the average homebuyer?
Before we talk about mortgage rates, let’s talk about what a mortgage is in the first place. Since houses cost a lot of money, most people take out large loans to pay for them, called “mortgages”. These allow the borrower to live in the home while they pay the mortgage off on a monthly basis. Unless you have an enormous amount of money saved up, you’ll get a mortgage to buy a house. While you’ll have to pay this money off each month, you still own the home, unlike renting. When you’re done paying off the home, there are no more monthly payments (besides utilities and property taxes).
Like all loans, this comes with interest rates that the borrower has to pay on top of money they’re borrowing. While they fluctuate often, mortgage rates have stayed in the 3 to 5 percent range in the last decade. (In the 1980’s mortgage rates went upwards of 15 percent!). The higher the mortgage rate, the higher the monthly payment.
While mortgage rates are important, you shouldn’t always choose the mortgage company or loan that boasts the lowest rates. Not all mortgage companies are the same and some have different products and different levels of customer service. Your mortgage will affect your financial situation for decades, so you want to make sure you know what you’re getting in to!
Different loan terms offer different rates as well. Some common loans are 30 year fixed and 15 year fixed, with the 15 year loan having a lower rate (fixed means the rate never changes). While it may be tempting to take a 15 year loan to pay off the mortgage sooner (and pay less total money on the loan), it also has a higher monthly payment. If you fall too far behind on this payment you could lose the home. Sometimes it’s better to take a longer-term loan to ensure you can keep up with the monthly payments. Either way, a loan officer will help you decide which option is best for you.
It’s a good idea for potential homeowners to watch rates, but don’t let it make or break your decision to buy a home. If you wait too long for rates to drop, your options could dwindle and your dream home could get sold to someone else. Loan officers are good at predicting where rates will go and can help you make an educated decision.
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