What Is an Interest Rate?
Whenever you are borrowing money from a lender, there will always be interest that is tagged onto your monthly principal payments. So… what is an interest rate anyway? Essentially it is a fee for the use of a lender’s assets. This rate itself varies based on a number of factors.
What Determines Your Interest Rate?
Your interest rate is based on your credit score, loan size, loan type, mortgage product, the location of your property, and more. Rates also vary from lender to lender as well. Shorter term loans typically result in lower interest rates, whereas longer term loans will result in higher interest rates.
APR vs. Interest Rate
Unlike your interest rate, which is the percentage you pay on the principal of your loan, your APR (Annual Percentage Rate) consists of inclusive fees. These inclusive fees include the closing costs on your mortgage and the calculation is based on the amount financed, discount points, finance charges, and how payments are scheduled.
Your APR will be expressed as a percentage and will reflect the true cost of borrowing. And it will always be higher than your interest rate because it embodies every different loan cost.
How To Get The Best Interest Rate
While you don’t have control over every factor that goes into your interest rate, there are some things you can take control of. The biggest factor you can manage is your credit score. It’s always a great idea to work toward having a higher credit score, but especially so when considering a mortgage loan. For more information about your credit score, click here.
Another factor you can control is how much money you borrow. It’s not always feasible to save a large down payment, but you should if you can. Homeside offers a wide range of loans, many of them flexible to fit your particular situation. Your Loan Officer will help match you with the best loan programs for your circumstances.
Lastly, shop around as much as you can. It’s good to have options and know that you are getting a competitive rate.