impact mortgage rates. These factors can lead to fluctuations in market interest rates. Ask your lender for the loan’s “par rate”—the interest rate that doesn’t require you to pay points or receive a lender credit. Paying points means paying upfront fees (typically 1 point = 1% of the loan amount) to lower your interest rate. Conversely, choosing a higher rate may earn you a lender credit, which can be used to offset closing costs.
TYPES OF MORTGAGE INSTRUMENTS
Residential loans are either “Fixed-Rate” mortgages or “Adjustable-Rate” mortgages. In a Fixed-Rate Mortgage (FRM), the interest rate is set for the entire term of the loan. A Fixed-Rate Mortgage offers consistency to borrowers because they’ll know exactly how much each monthly payment will be from the first day to the last day and how much principal and interest they will pay in total. Ask your mortgage originator for an amortization chart of your loan. The chart shows how much of your payment is assigned month by month to the interest the lender is charging and how much goes to principal which creates equity for you. The amount that goes towards paying interest is larger than the amount going towards principal at the beginning of the term. The amount going towards interest will diminish each month while the amount going towards your equity will increase. Most Fixed rate mortgages have higher interest rates than other types of mortgages because the lender is obligated to maintain the same rate for the length of the loan, which can be up to 30 years (360 months).
For some folks, committing to paying a bit more in interest is a
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