Mortgage Rate News

When you buy a home, the main concern is the monthly mortgage payment. But one of the most important things to realize is that the payment on your mortgage loan is not the only thing that comes into play.

When you use a mortgage calculator to determine how much your monthly home loan payment will be, most only take into account your payment on the principal and the interest. But there are other costs that can be added to your monthly mortgage payment:

Taxes. Property taxes are usually added in as part of your monthly mortgage payment. They aren’t part of your loan, and you won’t be charged interest on them, but they are usually tacked on.

Home insurance. This policy protects your home. In most cases, lenders and your provider come to an agreement in which the lender pays the premium, and you pay the lender. This is not part of the loan, and interest is not charged on it. This scenario can include fire and flood insurance policies as well.

Private Mortgage Insurance (PMI). In many cases, if you do not put 20 percent down when you buy a home, you have to get private mortgage insurance. PMI is a policy that covers your mortgage if you are unable to pay for it. It can protect you (as well as the lender).

Fees. These can be rolled into your mortgage loan. Many people, instead of paying their fees up front, choose to finance them along with the home loan. When this happens, they are considered part of the loan, and interest is usually charged.

Realize that when you figure your monthly mortgage payment, you should allow for other expenses that will be part of that payment. So you will need to add somewhere between $200 and $500 (or more!) depending on the value of your home, where you live and what kind of extras you will need to tack on.

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When you go to buy a home, you will find that your mortgage interest rate is one of the most important aspects of financing a home. After all, the interest rate you get on your home loan can mean a difference of tens of thousands dollars in payback over the life of your loan.

Here are some of the factors that lenders consider when offering you an interest rate:

Your credit score and history. If you want the best possible rate, you need to have a good credit score and a good credit history. The better your credit, the lower your interest rate.

National rates. Mortgage rates across the country, the Fed rate and even the rates on Treasury notes have effects on mortgage rates. These items provide a basis for overall trends.

Debt to income ratio. This is a number that expresses how much of your income goes to paying off debt each month. If you have a high debt to income ratio, then you will be less likely to qualify for programs that offer the best interest rates.

Length of term. Realize that how long your mortgage loan term is set for affects your interest rate. If you have a 15 year mortgage, you will usually pay a lower interest rate than if you have a 30 year mortgage.

Type of mortgage loan. A variable rate mortgage will initially have a lower rate than a fixed rate loan. However, this usually changes over time, erasing the advantages over the long term. An interest only loan has an even lower initial rate, but the drawbacks almost always overcome the initial benefits.

Points. You can pay “points” up front when you get a mortgage loan, and these can reduce the interest rate, possibly saving you money over the long run.

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When the subprime lending crash hit a few months ago, mortgage lenders realized that changes needed to be made in the way they approved loans and went about selling loan products. Fallout from the subprime lending crash is still affecting the mortgage industry, as lenders including Wells Fargo and others announce cutbacks and earnings problems.

Now, with the era of really easy credit coming to a close (at least for the time being), mortgage lenders are looking to re-educate themselves on a somewhat forgotten program. CNN Money reports on mortgage lenders’ new interest in FHA loans:

Now with the subprime market eviscerated, loan officers will be steering more borrowers with weak credit to loans insured by the Federal Housing Administration and advising those with little savings to get private mortgage insurance in cases where they can’t put down 20 percent.

The FHA program is intended for home buyers and homeowners with weak credit. Borrowers with FHA-insured loans - which they get from private lenders as they would any other mortgage - pay a small premium to the FHA every month.

The FHA, in turn, uses those premiums to cover the lender in the event of foreclosure and requires lenders to pursue viable ways to help borrowers avoid foreclosure if they become delinquent.

Subprime loans turned out to be a bad idea. These loans often eschewed private mortgage insurance, leaving homeowners and lenders alike very few options beyond foreclosure. And many people who maybe should not have received home loans were suddenly struggling to make payments that were beyond them.
This mortgage trend is a move back to the basics of responsible lending practices, with an emphasis on FHA loans, encouraging home ownership on terms that home owners are more likely to meet without as many problems. It may mean fewer loans, but the loans that are made are likely to result in solid returns through repayment.

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