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Mortgage Rates – What Are They And How Can You Chose The Best Rate For You

What are mortgage rates

HOME LOANS What Are Mortgage Rates

Mortgage rates are basically the rate of interest which is charged on a mortgage, and they can often be determined by the lender. They can either be fixed (which means that it will stay the same for the mortgage’s period of time) or variable (which means that it can fluctuate).

Although both types have their own benefits, they also have their down sides, too. The mortgage rate which is charged will determine the final cost of the mortgage, and also the amount of money which will be needed to be payed back each month, so it’s important that borrowers try to find the best deal.

How a mortgage rate is determined by a lender

When it comes to determining a mortgage rate, the lender of the loan assumes the risks which may come with issueing the loan. This is because there is always the chance that a borrower may not keep up on their payments, which will then cause them difficulties.

There are quite a few things which go into determining a mortgage rate, and if the lender believes that there is a high risk, then you’ll have a higher mortgage rate. And, the higher the risk, the higher the rate.

This is because a high interest rate will ensure that the lender regains the initial loan amount at a quicker rate in the case that the borrower doesn’t make pay them back.

Also, the borrower’s credit score can affect the size of a mortgage rate. For a lender, the higher the credit score, the more chance that a borrower will repay the money, as a good credit score usually indicates that the borrower has a good financial history.

Mortgage rate indicators

In general, the biggest indicator for a high or low mortgage rate is the 10-year Treasury bond yield. This is because the mortgage rate will rise if the bond yield does. But it also works the other way, and if the bond yield drops instead, then the mortgage rate will also drop.

The reason why it’s called the 10-year Treasury bond yield when many mortgages are calculated based on 30 years is because, after 10 years, a lot of mortgages are either paid off or are instead refinanced for a new rate. So 10 years is a good way to judge the mortgage rate.

Also, the state of the economy can be a good indicator for it, too. Usually, if the economy isn’t in a good state, then the bond yield will drop, and vice versa.