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Understanding Mortgage Rates

When purchasing a new home, mortgage rates play an important role in determining the total cost of the loan. Understanding how mortgage rates work can help you make an informed decision in purchasing your new home.

If you are looking to purchase a property and don’t understand how mortgage rates work, this blog is for you. In this blog, we will cover the impacts of interest rates on mortgages, the factors that determine mortgage rates, how to get the best possible rate, and the costs beyond interest rates.

Impact of the interest rates on mortgage costs

A mortgage rate is the interest rate a lender charges a borrower on their mortgage loan. The interest rate a lender charges is a percentage of the loan, and it is calculated over a period of time.

For example, a lender may charge a 5% mortgage rate on a $400,000 loan over a 30-year period. That equates to monthly payments of approximately $2,150 per month and roughly $373,000 on interest for the entire loan.

The higher the interest rate, the higher the monthly payments and the higher the total cost of borrowing as the home buyer will pay more money. Conversely, a lower interest rate means lower monthly payments and lower total mortgage costs.

Factors that determine mortgage rates

Mortgage rates can be affected by several factors including economic growth, inflation, and government policies.

When the economy is growing, there may be more demand for mortgage loans, meaning mortgage rates can increase. When the economy is trending downward, there may be less demand for mortgages, which can lead to a lower cost of borrowing.

In times of inflation, lenders may increase mortgage rates to compensate for the loss of value of their money. When inflation is low, lenders may decrease mortgage rates as there is typically less of a need to offset this loss.

Government policies such as monetary policy and tax laws can impact the total cost of borrowing. Like the previous examples, government policies can affect the supply and demand for mortgages. Such as tax affecting the disposable income available for consumers to purchase homes. Or the central bank changing the supply of money to make it easier or harder to borrow money.

How can you get the best possible rate?

With several factors determining mortgage rates, how will you know you’re receiving the best rate available?

First and foremost, having a good credit score shows the lender you’re a low-risk borrower, meaning the lender will be more willing to offer you a lower interest rate. If you don’t have a credit history, you may find it more difficult to obtain a loan as the lender will see you as a high-risk borrower.

Choosing a shorter-term loan can be seen as less risky by lenders and they will typically offer lower interest rates.

The best way to find the right mortgage for you is to shop around and compare all the best deals on the market. By doing some research and comparing the different options available, borrowers can save thousands of dollars on the life of their home loan.

One Click Life is a mortgage broker that can help you find the right home loan to satisfy your needs.

Other costs beyond interest rates

While interest rates are important, there are other costs to consider when you’re obtaining a mortgage such as closing costs and fees.

The closing costs and fees can significantly add to the overall cost of a mortgage, potentially going into the tens of thousands of dollars. Before entering into a mortgage agreement, borrowers should consider all the costs to ensure they can afford their dream property. For more information on the hidden costs of buying a home, visit: Hidden Costs of Buying a Home

Looking for a better mortgage rate?

If you are looking for a better mortgage rate, One Click Life can help you choose a lender that best suits your needs. We have a team of experienced mortgage professionals to help you select the right mortgage. One Click Life can also take care of your Taxes, Health Insurance, and Will, so you can spend more time doing the things you enjoy.