Making Sense Of Mortgage Rates Can Be Very Painful When You Don't Grasp The Techniques Explained Below

understanding mortgage rates

I was dining with some friends last week at a local Thai restaurant when I overheard a couple discussing the affordability of their new interest rate on their home loan. Apparently, he was against the idea of refinancing. She was for refinancing but didn’t know if they were receiving the best possible mortgage rate. Both seemed a little unsure and weary from what should have been a comfortable, exciting, and beneficial experience. As I was leaving, I handed them my business card and told them about some resources that might help clear up the confusion.

Understanding the basics of home refinancing does not have to be a dreaded experience. Yes there is a lot of terminology and jargon out there. However, the bottom line still remains. There are basically two types of rates when dealing with mortgages: fixed and variable.

Fixed rates, as the name implies, are interest rates that remain the same for the duration of your loan. Think of them as static rates that are unchanging. Variable rates (sometimes referred to as ARMs or Adjustable Rate Mortgages) are rates that change over time. Think of these rates as dynamic rates that can go up or down depending on what the current interest rate is. Although you may hear of other rates such as capped and collared, flexible, deferred interest, and discounted, they are all pretty much derived from the concept of fixed and variable.

When considering the connection between refinancing and mortgage rates, most analysts agree that if the current market rate is lower than your interest rate by two or more percentage points, then it is probably safe and wise to refinance. However, you must take into account any penalties or extra fees that may be tacked on to your loan. Also, be mindful of the length of your new loan when you refinance.

If you are still unsure about which rate is best for you but aren’t ready to discuss your available options with your mortgage lender, you may want to consider checking out some of the great mortgage rate calculators available online. These free calculators are easy to use, exceptional at giving approximate figures based off of your income/expenses, and are ready at your convenience.

Remember. It is your money, your home, and your investment. Don’t allow the jargon and terminology to hinder you from saving money and making one of the best investments possible!

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