Choosing a Housing Loan by Considering the Interest Rate

A mortgage is approved and house keys handed out

When you first meet with a mortgage broker, one of the first questions that he will ask you would be about your preferred housing loan interest rate. An interest rate relates primarily to the costs of the interest the loan accrues on a twelve monthly basis. The interest rate applies to the entire tenure of the mortgage, though this varies based on your preference and the amount of down payment.

Consider the following key points if you’re planning to apply for a home loan in Ogden, Utah.

Fixed vs. variable interest rate

Whether you will live in the house or it is just an additional investment, a fixed mortgage rate would be more favorable than a variable interest rate. In short, if you have a low-interest rate, the total loan interest rate will also be low. You must request this information from the lender so you can compare it with the rates offered by other mortgage companies.

Calculating the interest rate

Note that the interest rate is calculated based on the current interest rate on the market. While it is a fundamental basis for deciding on a mortgage loan, it can fluctuate over time. As such, it is important to compare rates in order to make an informed decision. The calculation of the interest rate will give you a better idea of how much you will need to pay every month, including the interest.

Monthly vs. annual reduction rate

Banks calculate the housing loan interest rate in two ways: 1) monthly reduction rate and 2) annual reduction rate. In the first method, the amount of capital is reduced on a monthly basis when you make a payment. As such, the interest paid on the following month will be based on reductions in the previous month.

In the second process, the principal amount is reduced on an annual basis. Remember that interest rates, whether monthly or annually reduced, may change anytime during the term of the mortgage. With this assumption, the bank must give you a realistic rate.

In any case, you can ask the broker or the bank to illustrate the accrual of interest using a mortgage calculator. You will understand the process in a more realistic manner, as well as learn how much you need to pay for. By knowing this, it would be easier for you to decide whether pursuing the home loan will do you good or not.