Mortgage payments are the major portion of an average American's budget. Interest is the 'price' you pay to get a loan. Therefore, interest rate is the primary concern of the borrower before signing up the mortgage. Even a minute change in the interest rate can upset your budget and make the mortgage unaffordable. That is why many prefer a mortgage with fixed interest. When the rate of interest is fixed for the entire duration of the loan, it is easier for the borrower to calculate how much he will have to pay every month towards mortgage payments and plan his budget accordingly. For example, if you take a 30 year, $100,000 loan at a fixed interest of 8%, your monthly payment, including principal and interest, would be $733.76 for the entire term of the loan. During the initial years of the mortgage your monthly payment is predominantly interest and a very small portion of principal. During the latter years, the proportion of interest and principal in the monthly payment is just the reverse because as the years progress the outstanding balance reduces and your interest quantum also reduces. You can avail a tax deduction for whatever interest you pay towards the mortgage. The interest payments over the life of the mortgage can result in a bigger amount than the mortgage amount itself. For example, if you take a 30 year, $100,000 loan at a fixed interest of 8%, you total interest paid over the life of the loan is $164,155.25. That is why one should wait for the right time, when the rates are reasonably low to go for a mortgage. Interest rate is economy dependent and keeps fluctuating every day. The rates go down in times of recession making it the best possible time to avail a mortgage. Also, the rate would vary from state to state and from lender to lender. The interest rate would also depend on the gestation and quantum of the loan and the creditworthiness of the borrower. There are many websites which guide you to calculate your mortgage payments with a clear segregation of interest, principal, and balance outstanding at the end of each payment. Almost all lenders' websites help you to do the exercise on-line. If you do your homework you'll be able to decide, even before approaching the lender, whether a particular mortgage plan fits with your budget or not. |
