Home mortgage is one of the most preferred refinancing options. They are secured loans that offer lower interest rates and flexible repayment periods. Having a collateral security enables the mortgage lenders offer the lowest interest rates possible. Lower monthly repayment amount is another advantage of a home mortgage finance option. This is done by extending the repayment period according to the financial condition of the borrower.
Factors Affecting Interest Rates:
o Amount of Loan:
At the beginning of every year loan limits and their respective interest rates are fixed by Fannie Mae and Freddie Mac. Where the loan amounts cross the said limits their interest rates tend to increase.
o Term of Loan:
Shorter loan terms reduce the interest cost of the loan but increase the monthly pay out amount.
o Nature of Interest:
Opting for an adjustable interest rate might initially seem to reduce the cost in comparison with fixed interest rate, but over a period of time they tend to raise the cost as the rates increase.
o Size of Down Payment:
Where the down payment made is more than 20% of the loan amount, the interest rates are low, when compared to down payments of 5% and less. Higher down payment lowers the monthly liability.
o Closing cost:
These are the fees paid by the lender. You bear a higher interest cost if you do not wish to pay all the closing cost, thereby providing the lender with an additional interest over the term of the loan.
o Credit Quality:
Maintaining a positive credit score is essential for availing loans at a lower interest rate. The FICO credit score is considered before granting loans.
o Income Level:
The income level of a person determines his interest liability. Where the income earned is greater than his liability a lower interest rate is charged, while on the reverse a higher rate is charged in spite of a good credit score.