Everyone has their dreams and aspirations. As time goes by, the list gets longer, starting from trivial ones to those that are significantly important. And for some, their dreams in life include at least owning a property for sale Philippines.
But those who aren’t born with a golden spoon or have passed down generational wealth must work extra harder to make owning a property possible. Unfortunately, sometimes, even with hard work, it is still hard to make ends meet. Even so, you are still committed to entering that new door in your life—having your first property.
Luckily, there are different ways how you can borrow money to fund your property. One of them is called a mortgage loan. It is when you as the borrower enter an agreement with a lender that will allow you to borrow the money you need to purchase a property or renovate already owned ones. When an agreement has been sealed, you’ll start paying the money you borrowed, including interest rates set by the lender. That is what you call the mortgage interest rates. But what exactly is it?
What are Mortgage Interest Rates?
Mortgage interest rates are the interest rates that you need to pay as a borrower to the lender. It is included in your loan monthly mortgage payment. Aside from paying the principal amount of the borrowed money, you’ll also be paying a percentage of the amount borrowed to the mortgage lender.
The mortgage rate is usually determined by what the lender sets but can also be influenced by other factors. Such factors can be the interest rate options that lenders offer.
Fixed-Rate Mortgage
As the name suggests, a fixed-rate mortgage has a fixed interest rate throughout the entire loan term. Its rate does not fluctuate for it stays the same from the start until the last loan mortgage payment. Despite the changes in outside forces that are said to greatly affect interest rates like the current situation of the economy, your monthly payments of principal with its corresponding interest rates will remain the same. The longevity of fixed-rate loans is usually either 15 or 30-year fixed-rate mortgage payments.
The good thing is that this type of mortgage makes it easier to budget for you will be paying your anticipated amount every month. However, the interest is relatively higher compared to other types of mortgage loans available out there.
Adjustable Rate Mortgage (ARM)
An adjustable-rate mortgage is also called a floating mortgage or variable rate. The mortgage rates of ARM fluctuate compared to the fixed ones. The current situation or status of the market highly influences this unsteady interest rate. Mortgage lenders set the same percentage of mortgage rates for a couple of years then eventually fluctuate depending on outside forces.
Its interest rate is lower than the fixed rate and despite its fluctuating behavior from time to time, there is a limit that states how much interest rate you should only be paying for term. On the contrary, since it changes, you don’t know what to expect. Will you be spending a less interest rate? or a much higher one compared to the last time? This makes it harder to allot a budget for you don’t know how much it will be until the payment needs to be settled.
How Is the Mortgage Interest Rate Determined?
As mentioned, some factors affect interest rates, causing them to go higher and lower. Here are some of them that influence the interest rates of your mortgage loan.
Economic Status
Looking at and monitoring the economic status of your country from time to time will allow you to have a glimpse of how mortgage interest rates are looking at the moment for there is no denying that it highly influences the rate of your mortgage loans. When the economy is doing a great job, sustaining more and more jobs, the mortgage rate skyrockets with them. It’s because people are becoming more and more capable to afford such rates and there’s more capital to lend, for the side of the mortgage lenders. On the other side, when the economy is at its lowest state, mortgage interest rates tend to be lower since the demand is relatively lesser so lenders decrease their rates as well.
Inflation
The level of interest rates goes up and down in connection with the level of inflation. When there’s high inflation, interest rates on loans tend to be higher since people have much disposable income which increases their spending capacity. Lenders charge higher interest rates to persuade people on spending less and saving more. The same goes for when inflation is lower, the interest rates go down as well. This allows people to spend more since the pressure on interest rates is not strict.
Loan Type and Term
There are different loan types and loan terms which highly depend on the agreement between the borrower and the lender. The type and the duration of your housing loan are usually one of the determinants of how high or low your interest rate would be. The shorter the term, the lower the rate.
Credit scores
In determining your interest rate, your credit history and score is something lenders take into consideration. If you are deemed credible with high and good credit scores, you are likely to receive lower interest rates because lenders know that you pay accordingly. If you have low credit scores or don’t have any credit history, you tend to be charged higher rates because lenders don’t know your paying habits.
Why are Mortgage Interest Rates important?
To wrap this up, mortgage interest rates are important because it helps you determine, control, and budget your expenses. Understanding how mortgage interest rates work and leveraging on them can allow you to also save more money while slowly owning that property for sale in the Philippines.
Keeping an eye out for the mentioned factors will allow you to get a clearer picture of how mortgage interest rates work and how they can help on lessening the burden you are carrying.
Related Blog: The Do’s and Don’ts of Getting a Home Loan
