Why Understanding Fluctuating Mortgage Rates Is Key

In today’s economy, especially with the depressed housing market, you may feel that now is the best time to buy a house. However, when you take a look at the myriad mortgage rates available and how rapidly they can change, all these fluctuations in rates can make you think twice about committing to a mortgage that could wind up costing you far more money than you’d planned on. Understanding why mortgage rates fluctuate is key to understanding exactly which mortgage will be the right one for you.

The four basic types of mortgages, fixed rate, adjustable rate, VA loans and FHA loans can be confusing. However, the two federal backed loans, the Veterans Administration (VA) loan is only for veterans and the Federal Housing Authority (FHA) loan is only for low income families and has other restrictions as well so most people looking for a home loan won’t qualify for them. Most people will be working with a mortgage company or bank on a fixed rate or adjustable rate mortgage.

Fixed rate mortgages are a mortgage where you pay a fixed rate of interest for the entire life of the loan. Whether you’re looking at a 15 year or 30 year mortgage, the rate you pay remains fixed. While fixed rate mortgages never go up, there are some drawbacks to getting a fixed mortgage rate. While a little riskier, adjustable rate mortgages, also known as ARMs, have an adjustable interest rate but there are benefits to go along with the risk.

Even though it may be a little riskier in the long run, an ARM which has an adjustable mortgage rate provides the potential homeowner with the opportunity to get into a home or buy more home than they may have been able to with a fixed rate mortgage. Instead of having to wait to build up a larger down payment, the first time homeowner can have the chance to qualify for a loan earlier. However, with an adjustable mortgage rate, the long term cost of the home may be higher.

Since interest rates are dependent on multiple economic factors, including Wall Street, unemployment and even foreign markets, there will always be fluctuations. The basic rate is based on the Fed rate or the amount the government charges banks to borrow from the government. But mortgage companies and banks use a variety of factors including introductory rates and other perks to give people a better interest rate for a short time. A fixed rate mortgage may give you a lower overall payoff, an adjustable rate mortgage can give you the chance to have a lower initial mortgage rate and get into a home you may not be able to afford any other way.

In determining just how much many can afford when it comes time to buy a home, the fluctuation of mortgage rates can play a big role. To help you get in the home of your dreams, Mortgage101 can help you find the lowest mortgage interest rates from hundreds of companies.