The type of home loan you choose, your personal credit history and national mortgage rates determine how much you will pay for a new home.
National mortgage rates dictate how much you can spend on a new home and be within your monthly budget. Rates are at historic lows today, yet slowly climbing. Before you buy a new home, it is important to research national mortgage rates, local lenders’ rates and programs that reduce interest rates on new home financing.
National mortgage markets
You can begin to research national mortgage markets online. A website such as Mortgage News Daily provides you with the interest rate available today on the most typical fixed-rate mortgages, Federal Housing Authority (FHA) mortgage, jumbo mortgage and adjustable-rate mortgage (ARM). This particular site also shows you the changes in mortgage rates over the past 52 weeks. While the national mortgage rates may change daily, how the rates compare loan to loan remains static. For example:
- The rate for a 30-year fixed-rate mortgage is higher than a 15-year fixed-rate mortgage
- The national rate for an FHA fixed-rate mortgage is lower than a traditional 30-year fixed-rate mortgage
- The rate for a jumbo 30-year mortgage is higher than a smaller 30-year fixed mortgage
- The initial interest rate of a 5/1 arm is lower than the 30-year fixed-rate mortgage or 30-year FHA fixed mortgage.
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Three main loan types
While all of these rates differ less than one point today, that may not always be true. It does help to understand the different types of loans and why national mortgage rates differ according to the type of new home financing you choose. The main three types of home loans are fixed-rate mortgages, adjustable-rate mortgages (ARMs) and hybrid loans, which combine the two.
A fixed-rate loan remains the same for the life of the mortgage regardless of national mortgage markets. So, your payments will be the same for the loan term unless your taxes and insurance are included. The national mortgage rate is lower on a 15-year fixed-rate mortgage than a 30-year loan because the lender takes less risk over 15 years than over 30. What may matter more to you is that you pay much less interest over the life of a 15-year loan than a 30-year loan, not simply because the rate is lower, but because you accrue less interest.
ARMs typically offer the lowest starting interest rate of any home loan. During times when national mortgage rates are high, the main benefit of an ARM is that you will pay lower mortgage payments and less overall interest during the introductory period than you would with a fixed-rate mortgage. The catch to an ARM, however, is that after the introductory period, the interest rate changes according to the national lending index. Depending on the ARM terms, your interest rate could adjust monthly, quarterly, annually, every 3 years or every 5 years. And the introductory period also typically varies between a year and 10 years. This means your mortgage payments will fluctuate with falling or rising interest rates. Therefore, this type of mortgage can result unaffordable mortgage payments.
Many ARMs have caps on interest rate increases, yet if your rate cap is six percent a year, then your interest rate could rise from 4.25 percent to 10.25 percent in one year. If you pay $200,000 for your home, then your monthly payment would go from about $983 a month to about $1,495 a month – a hike of almost $500 a month. By law, virtually all ARMs must have a lifetime cap, but it may be more than 6 percent.
Mortgage trends and your credit
If you want to look at the national mortgage trends over the past 40 years, look at Freddie Mac’s Primary Mortgage Market Summary. http://www.freddiemac.com/pmms/pmms30.htm You’ll see that rates on a 30-year fixed-rate mortgage have been up to 16.32 percent in 1980 and as low as 3.35 in 2012. This difference is huge when you consider the possible fluctuation of an ARM.
While you are researching national mortgage rates, keep in mind that your personal credit history determines your interest rate for new home financing. Your credit, income and debt-to-income ratio determine the amount of money you can borrow to buy a home. A mortgage lender will use those factors to set your rate. If you want to research mortgage lenders now, go to Reply!
FHA loan programs
In addition to reviewing national mortgage rates and the rates from local lenders, you should ask about FHA programs offered by each lender. FHA loans often have lower rates or less stringent qualification requirements. The FHA also has programs that pay down payments, closing costs or escrow.
You may qualify for an FHA programs for:
- Minorities
- Senior citizens
- Single parents
- First-time homebuyers
- Teachers, firefighters and emergency medical technicians
- People buying in neighborhood stabilization areas
- People buying fixer-upper homes
- People buying historic properties
Your state or local government may also offer programs that can help you with new home financing. To look at options where you want to buy, click here. With all of these resources on national mortgage markets and your options for new home financing, you should be able to find a good choice for buying a new home or investment property.
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