Use A Mortgage Calculator To Get The Best Rates
To use a mortgage calculator, you’ll enter a few details about the loan, including:
- Home price. The purchase price of the home.
- Down payment. The cash you pay upfront to buy a home.
- Loan term. The amount of time you have to repay the loan.
- Loan APR . The cost to borrow the money.
- Property taxes. The annual tax you pay as a real property owner, levied by your city, county, or municipality.
- Homeowners insurance. Your annual cost to insure your home and personal belongings against theft, fire, natural disasters, personal liability claims, and other covered perils.
- HOA fees: The monthly amount you pay to your homeowners’ association to help cover the costs of maintaining and improving the properties in the association.
It’s easy to change one or more variables to see how it would affect your monthly mortgage payment, mortgage interest, and the total cost of the loan.
For example, if you choose a shorter loan term, your payments will be higher, but you’ll pay less interest over the life of the loan. And, of course, if you have a higher interest rate, your monthly payment will be higherand so will the total interest.
Using a mortgage calculator is a good resource to budget these costs.
How Does Payment Frequency Affect My Mortgage Payments
More frequent mortgage payments means that each mortgage payment will be smaller. However, mortgage payments do not scale linearly. For example, a bi-weekly mortgage payment amount is not exactly half of amonthly mortgage payment amount. Instead, bi-weekly payments are slightly less than half of a monthly payment.
For example, for a $500,000 mortgage with a 25-year amortization and a mortgage rate of 2%, a monthly payment would be $2,117, while a bi-weekly payment would be $977.
A bi-weekly payment of $977 is equivalent to paying $1,954 per month, but choosing a mortgage with a monthly payment frequency will require a monthly payment of $2,117. Thats because with bi-weekly payments, youll be making 26 bi-weekly payments per year. That is equivalent to 13 months of mortgage payments per year, accelerating your payment schedule. Your more frequent payments will also reduce your mortgage principal faster, allowing you to save on interest and pay down more off your principal with each payment.
For example, 12 months of $2,117 monthly payments will result in roughly $25,400 being paid in a year.
26 bi-weekly payments of $977 will result in roughly $25,400 being paid in a year. The total amount paid per year is the same.
The table below compares monthly payments, bi-weekly payments, and weekly payments for a mortgages total cost of interest for a 25-year amortization at a 2% mortgage rate.
How Does A Mortgage Work
A mortgage is a type of secured loan where the property often your home is the collateral. So youll never be able to take out a mortgage without having some sort of real estate attached to it. Mortgage loans are issued by banks, credit unions, and other different types of lenders.
Aside from paying the loan back, you pay for a mortgage in two ways: fees and interest. Interest is paid on your loan balance throughout the life of the loan and is built into your monthly payment. Mortgage fees are usually paid upfront and are part of the loans closing costs. Some fees may be charged annually or monthly, like private mortgage insurance.
Mortgages are repaid over what is known as the loan term. The most common loan term is 30 years. You can also get a mortgage with a shorter term, like 15 years. Short-term loans have higher monthly payments but lower interest rates. Mortgages with longer terms have lower monthly payments, but youll typically pay a higher interest rate.
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Comparing Current Mortgage Rates
Borrowers who comparison shop tend to get lower rates than borrowers who go with the first lender they find. You can compare rates online to get started. However, to get the most accurate quote, you can either go through a mortgage broker or apply for a mortgage through various lenders.
The advantage of going with a broker is you do less of the work and youll also get the benefit of their lender knowledge. For example, they might be able to match you with a lender whos suited for your borrowing needs, this could be anything from a low down payment mortgage to a jumbo mortgage. However, depending on the broker, you might have to pay a fee.
Applying for a mortgage on your own is straightforward and most lenders offer online applications, so you dont have to drive to an office or branch location. Additionally, applying for multiple mortgages in a short period of time wont show up on your credit report as its usually counted as one query.
Finally, when youre comparing rate quotes, be sure to look at the APR, not just the interest rate. The APR reflects the total cost of your loan on an annual basis.
How Do I Pay For Cmhc Insurance
Your lender is actually the party responsible for payingCMHC insurancecosts. In the majority of cases, your lender will pass these costs down to you by adding the CMHC insurance premium to your mortgage loan amount. This will slightly increase your monthly or bi-weekly payment.
In some cases, your lender may allow you to pay CMHC insurance costs as a lump-sum, or not pass down the cost to you at all. Contact your lender for more details.
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Should I Get An Adjustable Rate Mortgage Or A Fixed Rate Loan
While fixed rate loans have interest rates that stay the same over the life of the loan, an adjustable rate mortgage fluctuates depending on the market, but usually has a cap limiting fluctuation.
While both offer advantages, your circumstances can determine which might be right for you.
An adjustable rate mortgage:
- Can be a popular option for new homeowners as they offergreat upfront savings.
- Have an initial fixed interest period.
- Cap how much a loan can adjust so borrowers can try to plan accordingly.
Consider an ARM if you expect to make more money in the future, plan to move early in the life of your loan,or refinance before your loan adjusts.
There are many types of fixed-interest rate mortgages, including 30-Year and 15-Year mortgages. They offer a clear view of the future, as borrowers are able to more accurately account for costs over the life of the loan. For those who want greater stability when planning their monthly costs, fixed-interest mortgages are popular.
Use A Mortgage Calculator
A mortgage calculator estimates what your monthly payments might look like based on inputs you provide. Try different scenarios to find your optimal mortgage, with monthly payments you can comfortably affordand total interest costs you can live with. For example, you might find that you could swing higher payments with a 15-year mortgage if you make a larger down payment.
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Factors That Can Affect Your Personal Interest Rate
Itâs important to understand that the best mortgage rate you qualify for may change depending on your unique borrowing profile. Here are some of the factors that influence what mortgage rate you qualify for:
The type of mortgage: If your mortgage is for a refinance, rather than a purchase or renewal, youâll be eligible for higher rates. For individuals with an existing mortgage who have good credit and more than 20% equity in their homes, in addition to refinancing, you can also explore a home equity line of credit .
Your down payment: If youâre purchasing a home andyour down payment is less than 20% of the purchase price and the value of the home you are purchasing is less than $1 million, youâll be required to purchase mortgage default insurance . This insurance is added to your mortgage amount and, while it will cost you money, it will result in a lower mortgage rate as your mortgage is less risky for your lender. If youâre renewing your mortgage, in order to be eligible for the lowest mortgage rates you would have needed to purchase CMHC insurance on the original mortgage.
Your intended use of the property: Your mortgage rate will be higher if you plan to rent your property out vs. live in it as your primary residence.
How Do I Choose The Best Mortgage Lender
You should always compare several different lenders when shopping for a home loan. Not only will the rates and fees vary, but the quality of service as well. Regardless of what lender you end up working with, its important to find someone that can help your individual challenges. For example, if youre a military veteran getting a VA loan, youll want to work with someone who has experience with those types of loans.
To find a trusted lender, you can look at online reviews, or even better, ask around. Your real estate agent and friends who recently purchased a home are great sources for mortgage lender recommendations. Try comparing a variety of different mortgage lenders. The best mortgage lender for you may be a bank, credit union, mortgage broker, or an online mortgage lender, depending on your situation.
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Consider Interest Rates And Closing Costs
The interest rate is important, but theres more to compare. Is there a prepayment penalty if you decide to refinance at some point? What are the total closing costs? Closing costs generally amount to 2% to 5% of the price of the home. If your home costs $150,000, expect to pay $3,000 to $7,500 in costs. Thats a big range, so it behooves you to see what a lender typically charges. The loan estimate sheet you get from your lender will give you the real numbers to check out before you sign on the dotted line.
What Happens At The End Of A Term
At the end of each term, you have the option to renew or refinance your mortgage.
- Renewing your mortgageinvolves signing for another term with your existing lender. Your monthly payment and mortgage interest rate may change.
- Refinancing your mortgageinvolves signing a new term agreement, possibly with a different rate or lender. Refinancing allows you to take advantage of lower mortgage rates or better options not offered by your current lender. You can also borrow more money by using your home equity and receiving it in cash.
Your mortgage lender might not reassess your credit score or debt service ratios if youre renewing at the same lender. If youre switching to a new lender, youll need to be reassessed and you may need to pass the mortgage stress test.
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Jumbo Mortgage Rate Moves Higher +007%
The average rate for the benchmark jumbo mortgage is 4.26 percent, an increase of 7 basis points from a week ago. A month ago, the average rate for jumbo mortgages was lesser, at 3.74 percent.
At todays average jumbo rate, youll pay a combined $489.02 per month in principal and interest for every $100k you borrow. Thats up $6.98 from what it would have been last week.
Clean Up Your Credit Score
As far as your bank is concerned, the credit score is a big number above your head that tells them how much of a risk you are. Through various calculations based on your transactional records, the bank will arrive at a three-digit number ranging between 0 and 999. You can use ooba Home Loans Bond Indicator to check your credit score, and how much you can afford.
Any improvement in your credit score can only work in your favour and help you to qualify for a lower interest rate. You can clear your credit record by paying off outstanding debt, and ensuring you pay your bills timeously.
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How Much Of A Mortgage Am I Qualified For
Youll need to apply for mortgage preapproval to get an estimated loan amount you could qualify for. Lenders use the preapproval process to review your overall financial picture including your assets, credit history, debt and income to calculate how much theyd be willing to lend you for a mortgage.
You can use the loan amount printed on your preapproval letter as a guide for your house hunting journey. But, be careful not to stretch your budget too thin and borrow to the maximum your preapproval amount doesnt factor in recurring bills that arent regularly reported to the credit bureaus, such as gas, cellphones and other utilities, so youll need to retain enough disposable income to comfortably cover these monthly bills, plus your new mortgage payment.
What Is A Mortgage Rate Lock
A mortgage rate lock allows you to lock in the interest rate your lender quotes you for a certain period of time. This gives you a chance to close on the loan without risking an increase in the mortgage interest rate before you finalize the loan process.
Once you find a rate you like, lock it in as soon as possible because rates can change overnight. If they rise, then you could end up paying more on your mortgage.
If you get a floating rate lock, then you can lock in a lower interest rate if rates fall, but you wont be obligated to pay higher interest rates than you were quoted if they go up.
While 30-day rate locks are typically included in the cost of a mortgage, a floating rate lock could cost extra. Depending on how volatile the rate environment is, you might find that a floating lock is worthwhile.
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/1 Arm Rate Rises +001%
The average rate on a 5/1 adjustable rate mortgageis 2.94 percent, up 1 basis point since the same time last week.
Adjustable-rate mortgages, or ARMs, are mortgage terms that come with a floating interest rate. In other words, the interest rate can change periodically throughout the life of the loan, unlike fixed-rate loans. These types of loans are best for those who expect to sell or refinance before the first or second adjustment. Rates could be considerably higher when the loan first adjusts, and thereafter.
Monthly payments on a 5/1 ARM at 2.94 percent would cost about $415 for each $100,000 borrowed over the initial five years, but could ratchet higher by hundreds of dollars afterward, depending on the loans terms.
How Does The Federal Reserve Affect Mortgage Rates
Home loans with variable rates likeadjustable-rate mortgages andhome equity line of credit loans are indirectly tied to the federal funds rate. When thefederal funds rates increase, it becomes more expensive for banks to borrow from other banks. The higher costs for the bank can mean a higher interest rate on your mortgage. ARM loans that are in their fixed period are not impacted by this increase. However if you suspect a federal increase is about to happen or it has just happened, you’ll want to move fast if you’re looking to make changes or have yet to lock in a fixed-rate mortgage.
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Amerisave Mortgage Corporation: Best For Refinancing
AmeriSave Mortgage Corporation is an online mortgage lender, available in every state except New York, offering an array of loan products. Along with conventional loans and refinancing, the lender also offers government loans, and is one of Bankrates best FHA lenders in 2021.
Strengths: Like other online mortgage lenders, AmeriSave Mortgage Corporation has some of the most competitive rates out there, and about half of consumers have had their loans closed in 25 days. The lender also doesnt charge a separate origination fee.
Weaknesses: Youll still need to pay a flat $500 fee.
> > Read Bankrate’s full AmeriSave Mortgage Corporation review
Prime Interest Rates: How Are They Determined
The SARB controls the repo rate the interest rate at which SARB lends to South African banks. This determines the prime interest rate, and in turn the rate at which banks will lend to their customers.
The prime interest rate is the repo rate plus the amount added by the bank in order to ensure they make a profit on their loans.
From thereon, your risk worthiness will determine the amount added by the bank to their prime interest rate when calculating your home loan interest rates.
And if the prime interest rate falls, so will your home loan interest rate, by the same amount.
For example if the prime interest rate is 7% and the bank grants you an 11% interest rate, your rate is prime + 4%. If the prime interest rate drops to 6%, your rate will still be prime + 4%, meaning your rate now drops to 10%.
Of course, youd need an exceptionally high and a solid deposit for the bank to offer you an interest rate below the prime rate.
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Jumbo Mortgage Rate Rises +005%
The current average rate youll pay for jumbo mortgages is 4.25 percent, an increase of 5 basis points over the last seven days. This time a month ago, the average rate was lower, at 3.78 percent.
At the average rate today for a jumbo loan, youll pay a combined $489.02 per month in principal and interest for every $100k you borrow. Compared to last week, thats $6.98 higher.
How Much Can I Borrow For A Mortgage
How much you can borrow for a mortgage varies by person, and depends on your financial situation: your credit, your income, and the amount of cash you have available for a down payment. The general rule of thumb for a conforming mortgage is a 20% down payment. On a $400,000 home, that would mean you need $80,000 up front.
Note that this calculation may be different if you qualify for a different type of mortgage like an FHA or VA loan, which require smaller down payments, or if you’re looking for a “jumbo loan” over $548,250 in most parts of the US in 2021 .
You don’t have to go with the first bank to offer you a mortgage. Like anything else, different servicers offer different fees, closing costs, and products, so you’ll want to get a few estimates before deciding where to get your mortgage.
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