What Is A Mortgage?
A mortgage is a financial instrument. Different from stocks and bank accounts, though, mortgages are a financial topic typically left un-taught in school.
The first time that most people learn about mortgages is when they’re about to become a homeowner.
“Mortgage” is defined as pledge to repay a loan where the loan is used to purchase real property, such as a home. We have come to think of a mortgage, though, as a means to bridge the gap between what a home costs and how much we have in the bank for a downpayment.
For example, if you were buying a $250,000 home and had $25,000 available for downpayment, you would mortgage the remaining $225,000 to the bank.
The terms of a mortgage loan vary from loan-to-loan.
- Some mortgages require a payback period of 30 years; others require payback periods of 20 years or 15 years.
- Some mortgages require the homeowner to make a down payment of 3%; other mortgages require no downpayment at all.
- Some mortgages require home appraisals to be performed; others waive home appraisals completely.
One area in which mortgages are alike? All mortgages are repaid with interest.
The interest rate for a mortgage is commonly called a “mortgage rate“. Mortgage rates vary based on the mortgage’s characteristics plus the day’s broader economic conditions.Verify your new rate (Jan 25th, 2020)
What Is My Mortgage Rate?
Mortgage rates vary from loan-to-loan.
Loans which are considered risky to a bank or lender tend to carry higher mortgage interest rates overall. Loans with fewer risk factors tend to carry lower mortgage interest rates overall.
This is one reason why borrowers with excellent credit get access to lower mortgage rates, on average, as compared to borrowers with less-than-perfect credit.
Borrowers with excellent credit are considered to be a lower risk to the bank which makes the loan.
In addition to your credit score, there are other factors which determine whether your loan is high-risk or low-risk.
Low-risk loan traits, which are associated with lower mortgage rates, include :
- The borrower has a history of on-time payments to creditors
- The mortgaged property is a single-family, detached home
- The mortgaged property is the borrower’s primary residence
High-risk loan factors, which are associated with higher mortgage rates, include a history of late or “slow” repayments to creditors; borrowing for a multi-unit home or a condominium; and, borrowing to finance a vacation home or an investment property.
Loan type affects your mortgage interest rate as well.
Conventional mortgages, which are mortgages backed by Fannie Mae and Freddie Mac, often carry the highest mortgage rate as compared to other common loan types.
By contrast, VA loans, which are loans guaranteed by the U.S. Department of Veterans Affairs, often carry the lowest rate. VA mortgage rates are lower than comparable conventional rates by as much as 37.5 basis points (0.375%).
Loans insured by the FHA are also often lower. FHA mortgage rates have been as much as 25 basis points (0.25%) lower than rates for comparable conventional loans.
USDA loans, which are also known as rural housing loans, often carry mortgage rates between VA and FHA rates.
Note that USDA loans can be used in most of the United States. They’re not limited to “rural areas” or farming communities.Verify your new rate (Jan 25th, 2020)
Getting Approved For A Mortgage
The steps required for a mortgage approval are fairly universal from bank-to-bank.
As part of the approval, a mortgage applicant will provide information which can be answered by a series of questions including “Where did you last live?”, “Where do you work?”, and “What is your annual income?”.
The mortgage application provides your lender with the basics of your credit profile.
Your lender then uses your provided information to request supporting documentation which may include the federal tax returns, copies of recent bank statements, and a copy of your drivers license or other government-issued identification.
The amount of time it takes to approve a mortgage application will vary by lender, and by current market conditions.
When current mortgage rates are low, for example, mortgage lenders are usually working with more customers as compared to periods when current mortgage rates are high.
When mortgage rates are low, therefore, it can take longer to approve a mortgage than when mortgage rates are high.
Also, some lenders work more quickly than others to approve inbound applications.
It’s not uncommon for a purchase mortgage application to be approved in less than 30 days. However, if you’re in need of a quick closing of 40 days or fewer, be sure to ask your lender if that’s possible.
What Are Today’s Mortgage Rates?
A mortgage is a complicated financial instrument. Homeowners today are afforded protections which didn’t exist even last decade. Interest rates vary from lender-to-lender, so be sure to comparison shop your quote.
Get today’s live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Verify your new rate (Jan 25th, 2020)