When it comes to shopping for mortgages, it is normal to want the lowest rate possible. As interest rates can dictate the overall cost of the loan, you may think that a lower rate automatically means a cheaper mortgage. While it is true that rates can affect the cost of the loan, you cannot solely rely on this factor when choosing the right mortgage.
Type of Interest Rates
If you choose a fixed-rate mortgage, your interest rates will remain the same throughout the life of the loan. Mortgage lenders in Fort Myers note that this can give you the security of fixed monthly payments and better payment stability. Just do take note that fixed-rate loans are more expensive or have higher rates than adjustable rate mortgages (ARMs).
With ARMs, the interest rate you will have to pay will fluctuate for a certain time and frequency. This only means that your monthly payment may increase or decrease depending on market trends. The type of ARM dictates the adjustments, but do take note that most ARMs offer a lower initial rate than a 30-year fixed mortgage.
Mind the Term of the Mortgage
Rates can influence your monthly payments, but so is the term of the mortgage. If you, for instance, decide to settle with a 30-year fixed-rate loan, you are likely to have a lower payment, as the balance is to be paid for a period of 30 years. This, however, also means paying more interest over the life of the loan. Many borrowers who cannot afford a higher monthly payment usually choose this loan.
If you, on the other hand, choose a shorter term like a 15-year fixed-rate mortgage, you will have to pay more each month. This is because you’re paying the balance for a shorter period. This also means a lower total of interest rate, less financial burden, and owning the home faster. You should also know, however, that the higher monthly payments can lower the amount of loan you may afford.
What About Mortgage Insurance
Apart from the types of rates and term of the loan, private mortgage insurance (PMI) can also affect your monthly payment. If your down payment is less than 20%, you will have to pay PMI. This protects the lender in case you default on the mortgage. You should also know that a smaller down payment translates to higher monthly payment. You can avoid PMI by putting down 20% or more.
If you want to get the best loan, don’t solely focus on interest rates. Learn more about mortgage programs and talk to a reliable lender to know more about your options.