Mortgage Rate
Mortgage rate is a particular amount of interest rate
that the borrower has to pay and that too within a specific
duration of time. To understand the mortgage rate, one must
have a clear conception about mortgage.
If someone feels to borrow some money, then he has to
visit to the bank or any other lending company for that. Now
these lending companies will not give him the loan without
checking that whether the lender will be able to pay the loan
back or not.
There are no feasible ways to check this truth. That is
why the companies demand a certain property of the borrower to
deposit as a security. This is called mortgage. One can keep
different things as mortgage. For instance, if you are taking
a home loan to build a new home, but you already have an
existing home, then the bank can demand your previous home as
mortgage, until you pay back the whole money. The main motto
of mortgage is, if you cannot pay back the money, then the
bank or the lending company will have every rights to take
over that certain property that you have kept as
mortgage.
The whole loan taking process follows some basic norms.
The lender will give the borrower a certain span of time to
repay the loan. But the borrower will not only repay the exact
loan amount, but also some added interest amount with it. This
added amount is called mortgage rate or mortgage interest
rate.
This interest rate or mortgage rate is implemented in a
yearly manner. That means the borrower has to pay a certain
percentage of money as interest every year. Sometimes it takes
place as a monthly manner.
Mortgage rates are mainly of two types,
Fixed Mortgage rate
Here, the interest rates always remain the same. They
never fluctuate. The reason of this stagnancy is it does not
depend on the index. That is why it never moves up and
down.
Adjustable mortgage rate
It is absolutely tied up with the indexes and that is why
it fluctuates with the price of the index. As the price of the
index goes up, the interest rate also goes up with it and when
the price of index comes down, the interest rate comes
down. Some very common indexes are, cost of funds index;
rates on 1-year constant maturity treasury, etc. there are
some lenders who do not use these common indexes. Instead they
use their own cost of funding as index.
In U.S.A six indexes are most commonly used. These
indexes are,
- National average contract mortgage rate
- Bank bill
swap rate
- 11th district cost of fund index
- Constant
maturity treasury
- 12-month treasury average index
-
London Interbank offer rate
Apart from these two, there are some other mortgage rates
also.
- Negative amortization mortgage
- Balloon payment
mortgage
- Interest only mortgage
- Graduated payment
mortgage
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