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Rates

Introduction

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Rates Introduction

Interest rates are a key element when comparing lenders and choosing a mortgage. Market rates are set by the Federal Reserve, but the interest rate that lenders will offer you will depend on the type of mortgage you are seeking, the term or length of the mortgage and your credit score. The better your credit rating, the lower the interest rate you can expect to be offered.

Popular mortgage options include fixed rate mortgages (where the interest rate stays the same for the duration of the loan) and adjustable rate mortgages (ARMs) where the interest rate will often start below market rate and then can be adjusted later in the term. Some lenders give you the option to reduce your interest rate by paying for ‘points’ or ‘discount points’. Each point costs a set amount and reduces your interest rate by one percentage point. Points charges and the mortgage interest you pay are usually tax deductible. When comparing lenders’ interest rates make sure to compare their rates for a zero-discount-point loan.

If a lender quotes you a specific rate, make sure to get it in writing and bear in mind that the rates are usually guaranteed for between 30 and 60 days. Some lenders will charge a fee to lock in rates. If market rates go up during your locked-in period, you keep your lower rate. If they go down in that time, many lenders will match the lower rate, but they are not compelled to do so by law.