Mortgage Rates

by Elizabeth Rosen, Contributor

For the privilege of borrowing money, you are charged interest by the mortgage lender. The interest rate (also called the “mortgage rate”) is a percentage of your loan balance which is typically calculated on an annual basis. The lower the interest rate is, the lower your monthly payments will be.

Your mortgage rate is affected by a number of factors. When figuring a mortgage rate, lenders look at the average national mortgage rate. This rate is influenced by changes in the financial markets. Lenders also look at your credit history to determine whether you will get the best mortgage rate. If you do not have good credit, your mortgage rate is likely to be higher, costing you more in long run.

READ: Your Credit and Your Mortgage

Mortgage rates play a major role in the affordability of loans. Depending on the type of mortgage you obtain, it may or may not have fluctuating rates.

  • A fixed-rate mortgage will have a steady interest rate throughout the life of the loan.
  • An adjustable-rate mortgage (ARM) will have interest rates that change after a specified period of time, based on the current housing market and national mortgage rates.

If your mortgage rate is adjustable, it will be “adjusted” based on a major mortgage index (e.g., LIBOR, COFI, CMT, etc.). If the index’s value rises, your mortgage rate and monthly payments will increase as well.

READ: The Monthly Mortgage Payment

In the end, the interest rate of your mortgage will determine the total amount you are paying for the loan.