Mortgage Interest Rates
Before we look at mortgage interest rates, let us first understand what is a mortgage. In a mortgage, basically, you pledge your property or real estate as a security against money that you take from a financial institute or a bank. The property stays as a security against the debt until you have cleared the full principal amount and the interest levied on that amount. The interest levied on the principal amount in known as the mortgage interest. |
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You can use commercial, residential or personal property as a pledge to take out a mortgage. Based on the type of mortgage and the terms, mortgage interest rates vary. For example, in a fixed rate mortgage, the interest rate will be constant throughout the term of the loan. Here the interest rate is slightly higher than a 30-year Treasury Bond and the borrower ends up paying the interest and a little bit of the principal on a monthly basis until principal amount is completely cleared.
In adjustable rate mortgage, the mortgage interest rate varies according to the indices. Here the mortgage interest rate is heavily dependent on the Treasury bill rate or the prime lending rate. The lender adds his commission to the prime lending rate and then passes on that amount to the borrower.
In addition, even the term of the mortgage determines that mortgage interest rate. For example a fixed rate mortgage for 10 years will have a lower interest rate compared to a fixed rate mortgage for 30 years or 15 years.
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