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The interest rate on a mortgage is the rate at which interest will accrue on the money you borrowed to purchase a home. When a lending institution determine that you are most likely going to pay back the money you borrow on time, they offer you a specific amount of money at a specific interest rate.
Interest for mortgages comprise a large portion of the payment made in monthly mortgage payments during the early years of a home loan. The first payment may be all interest except for $1.00 or less. Each month, the interest become a little less and the principal payment becomes a little more, until at some point in the life of your home mortgage when your payments comprise more principal than interest!
If you want to save on interest payments, mortgage points paid in advance can help bring your interest rate down a bit, sometimes quite a bit. However, paying points means you have to pay money up front and not everyone is in a position to do this.
If you want to save on interest charges, consider paying additional funds toward principal. When the interest rate and mortgage payment schedule are provided to you, it does not mean those payment amounts are set in stone. Rather, the schedule reflects the minimum amount you must pay. If you add some funds each month that are SPECIFIED to be applied to principal, you can reduce the outstanding balance on which interest rates are charged! Mortgages can be paid off much, much more quickly than you think if you consistently pay a little more than required.
Are there any exceptions? Yes, with every situation dealing with finance, there are exceptions. Some mortgages have clauses written into them resulting in a penalty for early payoff. Be certain you understand your mortgage before you decide if paying more toward principal is best for you. Also, check with your financial advisor before deciding exactly how much to add each month.
Interest rates usually have the largest impact on home mortgages. The difference in paying off a mortgage of $100,000 at an interest rate of 5% and paying the same $100,000 mortgage at an 8% interest rate is huge.
If you already have a home mortgage and find that interest rates on mortgages have dropped significantly from the time you financed your home, consider refinancing the mortgage at interest rates that are lower. To be sure whether you will save money by refinancing, you can visit one of the many online mortgage calculators.
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Mortgage Glossary Mortgage Equity Defined Interest Rate Mortgage Payment Insurance |
Mortgage Payment Options The Mortgage Pre-Approval Process |