If you are about to sign for a 30 year mortgage rate, you may be more than a little overwhelmed at the size of the commitment you are undertaking. While there is no doubt that a mortgage loan is one of the biggest financial obligations you will ever take on, there is some comfort in knowing that you went into the process informed about mortgages work. We have the basics of what goes into a 30 year mortgage rate, so you can rest assured that the biggest loan of your life will be easy to understand and familiar in every way.
The P & I
The mortgage loan basically consists of two parts; the principal amount, which is the actual amount of your loan, and the interest, which is the money you pay to the lender for the privilege of holding your mortgage loan with them. This amount will be directly affected by the 30 year mortgage rate that you negotiate with your lender. These two figures are generally lumped together in what is known as the “P&I” payment, and will usually remain consistent throughout the life of the loan unless you have an adjustable rate that will alter the interest amount from year to year.
The Term
A 30 year mortgage rate will be affected by the current market trends, but it will also be determined in part by the type of loan terms you and the mortgage broker agree to. The 30 year mortgage rate can be a traditional fixed interest rate that will be consistent throughout the life of the loan. This is good news when you end up with a rate that is below market trends, but not so good if your 30 year mortgage rate is 10% and the current market shows an average of 5.5%. The good news is that you can always refinance your loan to get a better 30 year mortgage rate; the bad news is that it costs money in fees and points to do so.
Discount Points and Locking In
These terms will be thrown around by your loan officer frequently, but it can be hard to understand exactly what they mean. The discount points are often paid at the loans closing, and are usually used to buy down a lower 30 year mortgage rate. Locking in means that you and your lender are committing to a set 30 year mortgage rate, even the rates fluctuate again before the loan is actually closed. Lenders will usually lock in rates at when you are 30 or 60 days out from closing your loan, and sometimes they will charge a fee to do so. Check with your lender to see what their policies are for locking in the best mortgage rate.
The 30 year mortgage rate may still seem like a big commitment, but with a bit of knowledge about how the process works, it can seem much easier. If you are interested in a new first mortgage or a refinance, contact a mortgage loan officer today.