If you shop around with mortgage lenders, you may see that the rates on mortgage loans vary. Having a good rate on a loan is very important though, as the rate will affect your monthly payments and total amount you will pay in all for the loan. If you want the absolute best rate you can get, there are three options you may need to choose when you get your loan.
An adjustable rate mortgage
The first thing you should understand is that there are two main types of interest rates you can get with a loan. The first is a fixed rate, which is a rate that will always stay the same for as long as you have the loan. The second is an adjustable rate, and this is an interest rate that will change periodically. You will know when it will change, such as in five years, but you will not know what it will change to. The rate it will change to will depend on the current economy when the rate change takes place.
Adjustable rate mortgages typically offer lower interest rates than fixed mortgages, and this is primarily because there is some risk with these types of loans. If you take a loan at 4% right now and rates increase to 30% in five years, you could be in major trouble financially when this happens.
A shorter Loan
Choosing a shorter loan is also a great way to reduce the rate of your loan. Most lenders offer lower rates on shorter loans for several different reasons. The main reason is because there is less risk involved. A person with a 15-year loan will repay the principle balance of the loan much faster than a person with a 30-year loan.
Finally, you may want to consider paying for points on the loan to get a lower rate of interest. Paying points involves paying a fee to get a lower rate. You might be able to purchase one point or multiple points, but the result will always be that your interest rate will be lower. With points, you are basically buying a lower interest rate for a one-time fee.
If you choose an adjustable rate mortgage and a shorter loan, and if you pay points, you will get the best interest rate that is possible for your situation. To learn more or to apply for a loan, talk to a mortgage company like Premium Mortgage Corp.