Selecting the right home loan mortgage rate is central to the home buying process–that's why it's so important to understand your options. You'll need to consider two things at the outset: which loan type best meets your home buying needs, and which loan term offers the ideal repayment schedule.
Most home loans fall into one of two general categories: fixed-rate mortgages and adjustable-rate mortgages. You'll also encounter other basic loan types such as government loans and flexible credit solutions programs.
- Fixed-rate mortgages have interest rates that stay the same for the entire life of the loan. You will have predictable monthly payments throughout the life of the loan.
- Adjustable-rate mortgages have interest rates that adjust periodically based on market conditions. The initial rate is fixed for an introductory period and is typically lower than for a fixed-rate mortgage. After that, the rate adjusts annually based on a market index, but can't go above a predetermined adjustment cap.
- Government loans are offered by conventional lenders, but insured by the federal government. They come in two types: FHA and VA.
- FHA loans are backed by the Federal Housing Administration, and are designed to assist low-to-moderate income homebuyers by offering low down payment requirements and flexible qualifying guidelines.
- VA loans are backed by the Department of Veterans Affairs (formerly the Veterans Administration), and are available to qualified veterans and active-duty military personnel and their spouses. They offer many of the same features as FHA loans.
- Flexible credit solutions programs are designed for borrowers with less-than-perfect credit histories, excessive debt, or previous bankruptcy, foreclosure or tax delinquency.
The “term” of a loan is the period of time you will spend repaying it. The most common loan term is thirty years, but you have other options as well, including twenty, fifteen, or ten years. Whether you'd be better off with a longer loan term or a shorter one depends on a number of factors, most notably your monthly income and long-term financial goals.
- Longer mortgage terms offer lower monthly payments, and are a good option if you're on a tight budget or would prefer to direct your monthly cash flow toward other investments or expenses.
- Shorter mortgage terms mean higher monthly payments, but allow you to repay the loan faster and save money on interest.
LTV (Loan to Value)
The amount of down payment you make, determines the Loan-to-Value Ratio (LVT). This is the ratio of the amount of your mortgage divided by the value of your property. The LTV is the relationship between the amount owed on the mortgage and the appraised value of the home. A $100,000 home with a $90,000 mortgage, for example, has an LTV percentage of 90%. The remaining balance must be paid with a down payment. In the example above, the required down payment would be $10,000 (or 10%).
Annual Percentage Rate (APR)
A measure of the total cost of credit (interest as well as other recurring charges) expressed as a yearly percentage rate. All lenders apply the same rules in calculating the annual percentage rate, giving consumers a good basis for comparing the cost of home loan mortgage loan rate.
Whatever loan type or term you choose; home mortgage offers a wide variety of product options to meet your unique home buying needs. Home mortgage lenders can help you find the right home loan mortgage rate to support your financial goals.