What You Need to Know About Home Loan Interest Rates
So, you need to borrow but before you do, understand that not every home loan is right for you. Further, the choice you make will affect things like your monthly payment and overall costs. Here’s what you need to know about home loan interest rates.
What is a Loan Option?
Well, it has three components: loan term, type of interest rate, and loan type. Let’s look at each.
Loan term. Whether it’s 30 years, 15 years, or other, loan term means the amount of time you get to repay your loan. Whatever term you choose will impact your interest rate, your monthly principal and interest payment, and the interest you’ll shell out over the life of the loan.
For the most part, the longer your loan term the more interest you’ll pay. Shorter-term loans will typically carry lower interest costs. However, they will have larger monthly payments than loans with longer terms. But precisely how much lower the interest costs — and how much higher the monthly payments — hinge on what loan terms you’re considering as well as the interest rate.
Here’s what you should know: In general, you’ll save cash with shorter terms in the long run, but you’ll also have higher monthly payments.
Do you know why shorter terms save you money? It’s because you’re borrowing money, and forking over for interest, for a shorter time. Also, the interest rate is typically lower.
Note that each lender offers its own rates, particularly for shorter term loans. Check out Bank of America mortgage interest rates, for example. Look at different loan terms and be sure to compare loan offers before deciding.
Also, while balloon payments are notoriously low, when the loan is due, you’ll have to make a relatively big one-time payment.
Interest rate type. Interest rates are either fixed rate or adjustable rate. Which one you opt for impacts whether your interest rate can change, whether your monthly principal and interest outlay can change, and the amount of interest you’ll pay over the loan’s life.
Here’s what you should know: If knowing what your loan costs will be in the long run is important to your peace of mind, you may want to go with a fixed-rate loan. With such a loan, your principal and interest payment will remain the same. Note, however, that your total monthly payment can change. This could occur, for example, if your mortgage insurance or property taxes change.
On the other hand, while adjustable-rate mortgages offer less certainty, they may be more affordable in the near term. This may be a good option for you if, for instance, you hope to relocate within the initial fixed period. Here, you may not be affected by future rate adjustments. But, if you wind up remaining in your home longer than anticipated, you could end up paying markedly more.
You should know, too, that most adjustable-rate mortgages have two periods. In the first, your interest rate stays the same. During the second, your rate fluctuates with the market. Most adjustable-rate mortgages carry 30-year loan terms.
Loan type. A loan can fall under the categories conventional, FHA, or special programs, depending on the loan size and whether they’re attached to a government program. Which type you pick will impact the size of your down payment, your loan’s total cost, and the amount you can borrow.
The type of loan you should choose depends on your situation. Perhaps only one type will do. If there are multiple options that might work, go through various scenarios, and get several quotes so you can see which loan type offers the most favorable deal.
In the main, most loans are conventional. While they usually cost less than FHA loans, they can be more difficult to obtain. Meanwhile, FHA loans generally require low down payments and you don’t need a high credit score. Special program loans include VA, USDA, and local. Ask Bank of America about them.
Now you know what you need to know about home loan interest rates. Knowledge is power. Move forward with confidence.
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