Mortgage Interest Rates
Buying your home with a mortgage is probably one of the biggest financial transactions you’ll ever be a part of. In most cases, about 80% of the price of your (potential) home will be financed. Over the next couple of years, you’ll be required to pay this amount back with an additional interest.
While this apparently seems pretty simple, things can get slightly tricky for first-timers. So if you’re not really sure about how mortgage and mortgage rates work in California and San Diego as well, here’s everything you need to know.
What is current mortgage rate in
As of now, California mortgage rates are :
- 4.25% on a 30 year period.
- 3.60% on a 15 year period.
- 3.49% on a 5 year ARM
- 3.16% on a 1 year ARM
Mortgage rates fluctuate and are not fixed and are likely to change on a daily basis. In most cases, these rates vary according to your unique situation and credit score.
How does a mortgage rate work?
While most of the terms of a mortgage are relatively standard and already fixed, your potential lender will adjust the rate based on certain factors. This includes information from the financial history of the borrower, and index rates (a figure that hints at the current situation of the financial market). But despite these features, the amount paid as a down-payment usually has the biggest impact on a mortgage rate. In the following section, you’ll find a more detailed insight into these different factors.
This is as simple as it sounds. If you pay a significant amount at the beginning of your mortgage, your mortgage rate is going to- be relatively lower. This usually happens by considering two points- the percentage of the down payment and the purchase of these mortgage points’. Your lender will consider the mortgage to risky if the down payment from the borrower is lesser. Due to this reason, most conventional loans require at least 2-% of the down payment in order to avoid the additional monthly expenses of a private insurance. The LTV or the loan to value ratio is yet another widely used indicator of this same figure. Interestingly, this figure works in reverse, which means 20% of the payment will result in a mortgage that comes with an LTV ratio of 80%.
As you apply for home loans, you’ll also come across the term buying points’. This usually refers to a fixed rate fee which can be used for reducing the rate of interest with a specific amount of percentage points (generally 0.25% for individual points). This, in turn, helps homeowners in reducing their monthly expenditures and saving money in the future. An individual point usually costs 1% of the home’s cost. So if your home is priced at $500,000, it’ll come down to a mortgage point of $5000. In order to pay for some extra points at the beginning, you’ll have to calculate the break-even point. This is because you only get to make back the initial cost of these points after a certain amount of time.
It goes without saying that your credit score will impact the mortgage rate that your potential lender is looking to offer you. According to the reports from FICO, this difference causes your interest rate to vary between 3.63% and 5.22% during a 30 year period.
This is yet another factor that determines the mortgage that you’re likely to pay. Like most banks and financial institutions, your lenders too, observe the current situation of the financial markets while obtaining a credit. This refers to the rate at which government and bigger companies sell non-mortgage tools (bonds). In case you’ve opted for an adjustable rate mortgage, your borrower’s interest rate will directly depend on a major index rate like the London interbank or the US Treasury Bond. Although you cannot control the movement of these debt markets, you can always observe in their direction.
What are the different types of
Mortgage rates are usually classified as fixed rate and adjustable rate mortgages. In case of a fixed rate mortgage, the interest remains the same. Contrarily, for an adjustable rate mortgage, the interest rate changes according to certain pre-determined conditions. Due to this reason, adjustable rate mortgage is often termed as variable rate or hybrid load mortgage.
Fixed rate mortgage
For this mortgage, the monthly payment remains the same for the entire duration of the loan. Your interest rate is completely locked in and doesn’t change during the entire time. The span of repayment is usually around 30 years. However, shorter lengths ranging between 10, 15, 20 years can also be availed. As evident, the shorter duration loans have huge monthly payments because of their lower interest rate and lower total cost.
Adjustable monthly rate
For this type of mortgage, the rate of interest is not completely fixed and the payment of the loan will change from time to time. Most of the adjustable rates have a specific limit or condition regarding how much the interest rate will fluctuate and how often it can be changed. When your rate goes either up or down, your lender will calculate the monthly payment once again so that you send in equal payments till the next adjustment. So when the interest rate increases, your monthly payment to increases. Here, the payment applies to the principal and the interest in the same way as a fixed rate mortgage. Usually, lenders offer low rates of interest during the first couple of years. Over the next few years, the rates change (usually at least once a year).
Other types of mortgage
Although most individuals end up with a fixed or adjustable mortgage rate, there are also some other alternatives. These include FHA and VA mortgage loans that require small down payments from borrowers and zero down payment from the veterans. But although the down payment is low, you’re required to pay more on a monthly basis, which also amounts to a greater principal balance than the original sum.
In addition, there are also other types of mortgage where you’re only required to pay the interest rate on your home. Choose your option carefully after considering your current financial condition. You should also check the San Diego mortgage rates before making your choice.
© 2018 Lee Ann Stein - Home Loans