Are mortgage interest rates a mystery to you? Don't worry — you're not alone. Rates are complex, and depending on the state of the economy, can fluctuate wildly from day to day. How's a person supposed to keep up?
Let's take a look at mortgage interest rates at the most basic of levels, starting with what may seem like an obvious question. It really is the best place to start.
WHAT ARE MORTGAGE INTEREST RATES?
Glad you asked! When you borrow money from a lender to purchase a home, they won't give it to you for free, unfortunately. Think of your interest rate as an extra fee, one that you make to the lender for loaning you cash.
The amount of money that you borrow from the bank represents your principal. The cost for borrowing that money is your interest rate. When you are making your monthly mortgage payment, you are most likely paying down a portion of your principal, as well as an additional interest payment.
WHY DO INTEREST RATES GO UP AND DOWN?
There is no simple way to anwer this question. Many factors contribute to the phenomenon, including consumer confidence, employment statistics, supply and demand within the housing market, and other economic factors.
Interest rates work just like any other sales industry. Take supply and demand in the housing market — the need for home financing ebbs and flows throughout any given year. If the economy is down, fewer people are buying homes. A decrease in new mortgages likely means that lenders are willing charge less to part with their money. Conversely, when demand is strong, they raise prices, a.k.a the interest rate.
WHAT IS THE DIFFERENCE BETWEEN A FIXED RATE AND A VARIABLE RATE?
Great question! Fixed-rate financing means your interest rate does not change over the life of your loan. If you have a 4% fixed rate on a 30 year mortgage, that rate will be 4% on the first day of your loan, and it will be 4% on the last day, 30 years in the future. Variable-rate financing is more of a gamble, as the interest rate on your loan can change, based on the current U.S. prime rate. Your rate will rise and fall with the market, which will result in either an increase or a decrease in your monthly payments.
HOW DO I GET THE BEST INTEREST RATE?
Simple: by calling Midwest Lending. Going directly to a bank or lender does not typically result in the lowest rates, as the bank or lender is looking out for their best interest, not yours. Your Midwest Lending Loan Originator, on the other hand, will apply for loans with different lenders on your behalf, shopping for competitive mortgage rates and ideal loan terms.
They will also save you valuable time — it can take hours to apply for different loans on your own, and then there’s the back-and-forth communication involved in underwriting. Your Midwest Lending LO will save you the hassle by managing that process, with only your best interests in mind.
Call Midwest Lending today. We'll pair you with the best loan product, at the best rate available!