Interest Rates 101

Understanding Interest Rates

If you are in the market for a new home, or it is time to refinance your mortgage, there is no doubt you have been looking at the current interest rates.  But with all the financial jargon and the multitude of lenders and mortgages available, understanding your options can really be confusing.  Here are some simple facts about interest rates and how they affect your bottom line. 

Do Your Research 

As with any major decision, knowing the facts about the housing and financial markets before making any major decision is of vital importance to protecting your investment.  Review online the national mortgage rates for different types of loans.  There are a number of sites where you can find this information, or you can ask your REALTOR® to point you in the right direction.  In general, fixed rates will be higher, but as they don't fluctuate over the term of your loan they may be a better choice for those who need the stability of fixed payments.  Also when comparing interest rates, be sure you are comparing the APR, or Annual Interest Rate, to ensure that your comparisons are on equal ground. 

Also keep yourself informed on some of the riskier options that may be out there.  ARMs, interest-only mortgages, no-doc loans, and 100 percent mortgages are some of the more aggressive loan types out there.  They may be appropriate for your situation, but they present more risk for the lender, and are not always a wise financial choice.  They also often come with higher interest rates that may return to haunt you later. 

Preparing Yourself To Get The Best Rates 

Understood or not, ultimately we all want to get the best interest rates for our mortgage in order to save money.  No matter what type of mortgage you choose, there are a few steps you can take to get the best rates.  You can reduce your rates by: 

Saving a sizable down payment 

Establishing a pattern of paying your bills on time 

Reviewing your credit report and correcting any errors 

Shopping around with multiple institutions and different types of lenders 

Armed with these simple facts, you can protect yourself from bad financial choices and remain aware of the steps you should take to get the best interest rates.

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