Purchasing a home can be a stressful time, especially if you are a first-time home buyer. Unless you have endless amounts of cash laying around, you are probably going to need to get a loan to be able to buy the home that you want. Depending on a lot of personal factors and decisions, you have some wiggle room on the type of loan you use and the interest rates you qualify for. Let’s focus on the Interest Rates for a 15 Year Home Mortgage.
What is Interest?
The most common place to get a home mortgage loan is through a bank or a lender that focuses on home loans. Because they are a business and they need to make revenue, they will charge you a fee for borrowing their money. That fee is interest. They are taking a risk with you by letting you have their money and the interest that you pay helps them to earn their money back and more. When you make a payment on your house, a percentage of your payment will go to pay for the interest of your loan. That way, you pay your interest a little at a time. When you have paid your house off and depending on the type of loan you quality for, you could have little or no interest to pay off as well (https://www.thebalance.com/what-is-interest-315436).
What determines the interest rates for your 15 Year Home Mortgage? Several factors such as:
- Your credit score: Your credit score will show a lender how reliable you are at paying what you owe. Before you apply for a home loan, check your score. A low credit score will cause your 15 Year Home Mortgage Interest Rates to be higher than average. If you can, work on improving your score before applying for a home loan. You could save yourself thousands of dollars in future house payments.
- The location of your home: The state, county, and even if you are rural or urban can affect your rates.
- The amount of money that you need to borrow: The more money you need to borrow from the bank, the higher the risk of you not being able to pay them back. They may charge you a higher interest for that risk.
- The size of the down payment: If you are able to put a sizable down payment on your home, then you won’t need to borrow as much money from your lender. The lower the amount, the less risk you are, the lower the interest rate.
- How long your set the loan for: Your lender will give you options on how long you need to pay back the loan. Some of the most common are 30 year and 15 year.
- Whether you choose a fixed or adjustable rate mortgage
- The type of loan you use: conventional, FHA, etc.
What is a fixed rate mortgage?
A fixed rate mortgage is the most common choice for a home mortgage loan. The principal and the interest on your monthly loan payments will never change. However, your property taxes and insurance for your home can still change month to month. There are several choices on how long you want to pay on your loan. 30 year and 15-year mortgages are the most common, but you can set an amount of time such as 10 or 20 years if you need to. The pros with going with a fixed rate mortgage is that you will always know what your interest rate is. If you aren’t very savvy with budgeting, knowing what your house payment will be every month can be easier to handle and plan for. Another positive is that you won’t have interest to pay when you pay off your loan.
Fixed-rate mortgages are easy to understand so they are perfect for first time home buyers. The downside of choosing a fixed rate mortgage is that if the market changes at all and the interest rate is lowered, you can’t take advantage of the lower payments unless you refinance. That could mean more work for you such as more closing costs, trips to the title company and making sure that you have all the right forms to turn in the paperwork. If you like to shop around for the best deal, you won’t find much difference between lenders. Fixed-rate mortgages are nearly alike wherever you look.
What is an adjustable rate mortgage?
As the name implies, an adjustable rate mortgage has an interest rate that may change and fluctuate with the market. When you first sign up for this type of mortgage, there is a period of time where the rate will be lower than that what you would get with a fixed rate mortgage. After that set time, the rate will start to fluctuate and could be different month to month. The positives for choosing an adjustable rate mortgage for your 15 Year Home Mortgage Interest Rates are:
- The initial payments will be lower than the fixed rate mortgage making it easier for you to buy a larger home.
- Your monthly payments have the possibility to be lower than average every month.
- If you aren’t sure how long you will be in an area or plan on moving before your loan is paid off, an adjustable rate mortgage is a cheaper way to pay for the house the short amount of time that you live in it.
- The negative parts of choosing an adjustable rate mortgage are:
- The rates are unpredictable. They can rise or lower month to month and could be costing you a considerable larger amount than you would be paying with a fixed rate mortgage.
- You must be good at budgeting and be able to make sure you can make your monthly payment if the rates rise. Not having a good savings or a little cushion in your budget could be very stressful month to month.
- You need to do your homework and make sure that you understand some of the basics of what you are signing up for. Adjustable rate mortgages can be difficult to understand, and dishonest lenders may take advantage of your lack of knowledge.
Overall, buying a home is exciting and can be a big step in your life. Write down what you want in your future home and don’t rush into anything you are not comfortable with. Go over the pros and cons of each type of mortgage and do a budget for each one to see which will fit better with your expectations of the payments. Your 15 Year Home Mortgage Interest Rates shouldn’t be a headache with the proper preparation.