Adjustable Rate Mortgage Tag

One of the primary items you’ll be looking at when you come to a mortgage company like City Creek Mortgage is your interest rate. Also called a mortgage rate, this is perhaps the largest individual financial factor involved with most mortgages.

Do you have any control over getting the best mortgage rate possible? Absolutely. Let’s look at a few of the main factors that influence interest rates, and how you can use them to get the best deal possible.

Market Factors

Maybe the largest factor for many people is the market as a whole, which can fluctuate based on several complex economic factors. These factors are outside any individual control – the best you can typically do here is keep a keen eye on the market and look for opportune moments to get the best rates. At City Creek Mortgage, our brokers can give you some great industry tips on factors that might cause future markets to raise or dip.

Size of the Loan

For the most part, a larger loan amount will equal a higher interest rate. The lender is taking a higher amount of risk by loaning you a larger amount, and the higher mortgage rate reflects that.

Loan Type and Length

The two primary loan types for most people are adjustable-rate mortgages and fixed-rate mortgages. Adjustable-rate mortgages tend to have lower starting rates, but note that these can raise during the period of your loan if the market dictates it. Fixed-rate loans generally have higher starting interest rates, but you get the security of knowing they’ll never go up.

The length of your loan is also important. 10- or 15-year terms generally come with lower rates than 30-year terms – again, it’s just about risk for the lender.

Down Payment

The more money you can put down up front to minimize the lender’s risk, the better rate they’ll give you. Some lenders will require a 20 percent down payment for certain types of loans, though this isn’t always a hard and fast rule.

Credit Score

The factor you have the most individual control over is your credit score, which can get higher or lower depending on your success paying down various forms of debt. There are certain types of loans you can’t even be approved for without a certain threshold credit score, and for many others, credit score will be a huge crux point for your final interest rate.

Want to learn more? Contact the expert brokers at City Creek Mortgage for more information on any of our mortgage solutions.

There are a number of factors to consider when deciding on a mortgage for a new home or a home refinance. Everything from credit score to money down to equity can be an important consideration, and as they say, the devil is in the details.

One of the broader choices people are often faced with during these situations is this: Adjustable-rate mortgage or fixed-rate mortgage? These two opposites are really only separated by one major line, but that one element is often the most important factor in determining whether your mortgage ends up being a good investment or a bad one.

At City Creek Mortgage, our expert brokers are dedicated to providing you all the information necessary to make the right mortgage decision – and this is one of the first boxes to check. What makes adjustable-rate mortgages more attractive for some people than fixed-rate mortgages?

Basics of Adjustable-Rate Mortgages

Interest rates are at the crux of every mortgage-related decision, and the first big call you’ll make is whether your interest rate stays the same through the entire life of the loan, or whether it’s open to change based on market factors. If you choose the latter, this is an adjustable-rate loan.

Most adjustable-rate loans actually start out as fixed-rate loans, with mortgage rates that remain constant for anywhere from five to ten years. After that, though, your rates are open to change based on market dynamics. There are limits to how much your rate can go up – never more than 5 percent above your original figure, and always between 2 and 5 percent per adjustment period.

Low Interest Rates

The “adjustable” part of these loans means that you’re making a small sacrifice in some situations – if interest rates go way up during your adjustable period, you’re stuck paying the higher rate even if you started out at a much more favorable number. This wouldn’t be the case with fixed-rate loans, but the trade-off usually comes in the form of a much lower initial rate in the first place. Adjustable-rate loans will start at a way lower point than most fixed-rate loans, and as we noted above, they’ll stay fixed for the first several years before there’s any possibility of a raise.

Perfect for Refinancing

That buffer period where rates remain very low for the first few years makes many adjustable-rate loans perfect for people looking to refinance a home. You can typically refinance up to 95 percent of your home’s value using those low-rate loans, and the long grace period also means people looking to quickly flip a home for profit could be in for a great return. It’s this sort of flexibility that makes adjustable-rate loans attractive to many people, even if they absorb the risk of interest rates which may rise slightly in later years.

Want to learn more about loan types, or any other part of our mortgage service? City Creek Mortgage brokers are standing by.

Whether you are planning to purchase your first home, or you have purchased before and it’s time to move to a new home, it’s important to understand the different types of mortgage loans available. One of the most important things about your new loan (that will play a key role in your total monthly payments) is the interest rate. You may have heard about “fixed rate” or “adjustable rate” mortgages, which both offer advantages and disadvantages, but if you’re not sure what the difference is between the two, read on to find out.

Fixed Rate Mortgage

When you have a fixed rate mortgage, the interest rate on your loan will never change as long as you have the loan. It is set from the time that you sign the papers to close on your new home, and doesn’t fluctuate regardless of what happens with market interest rates. This type of loan is advantageous because you know your rates and payments will remain constant, and having this kind of stable payment helps you budget and plan better. They are also straightforward and easy to understand so you don’t get any surprises.

The disadvantage is that if interest rates do go down and you want to take advantage of it with a lower payment you will need to refinance, which can mean additional closing costs and paperwork. The initial interest will also be higher (and thus your monthly payments higher) than an adjustable rate would be, so it can be expensive for some homebuyers who might be able to afford higher payments later but cannot do it from the outset of the loan.

Adjustable Rate Mortgages (ARM)

Adjustable rate loans, also called ARMs, generally start at a lower interest rate for a set period of time, then can fluctuate up or down depending on the market. The interest rate of your loan is tied to a broad measure of interest rates (called an “index”), and when that index goes up, so does your payment amount. In some cases your payment might also go down with the index, but not in all cases so it’s important to understand the terms of your loan in advance.

The advantage of this type of loan is that the interest rate often begins very low, which can make it an affordable option for many homeowners. These lower payments can also help you qualify for a better home when you initially take out the loan. If your loan is structured to allow for the interest rates to go down with the index, you can take advantage of falling rates without the added closing costs. Plus they offer a lower-cost option for homeowners who are not planning to stay in a specific home for long.

The opportunity to see your payments go down with interest rates also means that they could go up with rising rates. Some ARMs have limits on how high your rate can go, and how often it can be adjusted, but there are cases where you might see the interest rate double or more over the life of the loan. Higher interest rates mean higher house payments, so it’s important to figure out how high the rates could go and still allow you to make your monthly mortgage payments. Finally, since there are many intricacies to these loans, a novice homebuyer could get confused or even trapped by an unscrupulous mortgage company.

It’s important for homeowners to understand all the parts of these two types of loans so you can choose the one that makes the most financial sense for you. Talk to a mortgage loan office today to find out more.